The Bloomberg Barclays US High Yield Index posted a return of 0.05% yesterday.* High yield bonds were largely unchanged yesterday despite oil and equities lower and the yield on the 10-year US Treasury up to 2.96%, a five week high. Today, high yield is better along with equities, oil and gold, while the 10-Year Treasury is flat. There were two high yield new-issues that came to market yesterday for $1.2B in proceeds and another $1.9B is expected to come this week. Year-to-date supply is the lowest since 2009. Outflows continued from the asset class yesterday, while floating rate loans saw the first tiny outflow in a long time, at -$5M.
In what could be viewed as a continued sign of a strong corporate health, if you put any credence in the ratings agencies, the number of companies rated B3 or lower are at a three year low. Our take is bonds and loans are either AAA or D (in other words, they either pay or don’t), and you have to do your own work to determine the credit quality. We don’t believe that buying an index is the best course of action in this environment.
Oil is up today after several weeks of weakness and it has entered contango as the threats between the US and Iran rage on and the fact that Israel shot down a Syrian jet. Uncertainty in the Middle East is always a catalyst for higher oil.
An interesting thing to ponder is all of the talk about the lack of liquidity in the S&P 500. There have been so many products launched of various styles and strategies, the float has been eaten up. Also, throw into the mix all of the companies doing stock buy-backs, and this is where you are.