The Bloomberg Barclays US high yield bond index was up 0.15% yesterday,* but the high yield bond market is opening weaker today for a variety of reasons, with the main one TARIFFS! The US is prepping for another $200B in tariffs on imports from China, slated to take effect September 1. That gives both sides the remainder of summer to negotiate. President Trump is also at the NATO summit calling out those countries, Germany in particular, for not paying their fair share and being between a rock and a hard place with Russia as it was said Russia controls 70% of Germany’s natural gas flow. This is strategic since there are also negotiations going on with the EU, namely Germany, on trade and tariffs.
There is little movement in the 10-year Treasury following a stronger than expected PPI number this morning. Costs for truck transportation of freight was the highest since 2009; fuel and wages are driving this as there is a big demand for drivers. Interesting enough for the consumer is food prices fell 1.1%—will this be seen in tomorrow’s CPI report?
Moody’s reported that the US speculative grade default rate fell to 3.4% in June from 4.0% in March. Moody’s analysts expect the Media: Advertising, Printing & Publishing sector to see the highest number of defaults in the US. They also stated that despite the tariff banter, overall global growth and liquidity are sufficient to keep corporate credit quality steady.
Four high yield bond new-issues came to the market yesterday, all drive by deals that priced at the tight end which indicates that the market is hungry for new paper. This makes sense as we have seen three straight days of inflows.