High Yield Morning Update

The Federal Reserve raised its benchmark lending rate yesterday, as was widely anticipated by the market, and reiterated guidance for two hikes this year while keeping the long term target unchanged. Markets responded favorably with all US risk assets gaining ground as investors remain optimistic about the economy. The yield-to-worst/spread on the Bank of America High-Yield Index tightened for the first time in 10 sessions closing the day at 6.07%/+402bps. The pace of issuance remained slow with just one deal priced for $375 million, taking the MTD total to 40 deals and $25.45 billion in proceeds. Despite the turn in sentiment yesterday, WTD retail mutual and exchange traded fund flow data still shows a massive outflow of over $4 billion Thursday through Tuesday. WTI gained over $1 yesterday as EIA data showed that crude, gasoline, and distillate stockpiles all dropped while the market had priced in a further gains. This morning, yesterday’s rally is extending as markets continue to gain ground after the Fed statement eased some of the recent tension. High-yield is opening well bid as investors reenter the market looking for bargain pricing after the 9 day slide in prices with energy leading the way as oil advances for a second day. Four new deals are slated to price this afternoon.

The Bank of America Merrill Lynch US High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg. Yield referenced is the yield-to-worst and spread referenced is the spread-to-worst.

High Yield Morning Update

A heavy tone continued to drive the high yield market lower yesterday as the FOMC meetings got underway, with the yield-to-worst/spread on the Bank of America High-Yield Index pushing wider for the eighth straight session to close at 6.19%/+405bps, down 10bps/11bps on the day and 62bps/48bps since the slide began. It took a winter storm in NYC to pause the issuance activity with no new deals pricing yesterday, though MTD issuance stands at $25.075 billion making it the busiest month since September after last week’s record setting pace. Issuance spiked over the past couple weeks as the Fed hike talk moved sharply from a gradual hike in rates to a near certain hike this week as market expectations went from 32% on Feb 1st to 80% on March 1 and 100% on March 8. WTI closed at a three-month low of $47.72, down 1.4% on the day. Money continues to flow out of the high-yield market this week with an estimated $3 billion outflow WTD after last weeks $2.12 billion outflow (flows from mutual and exchange traded funds, reporting week runs Thursday to the following Wednesday). The 10yr Treasury note yield closed at 2.60% versus a 32-month high of 2.63% yesterday. This morning the market is bouncing as oil recovers from its recent slide and the market awaits the Fed decision this afternoon at 2PM ET.

The Bank of America Merrill Lynch US High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg. Yield referenced is the yield-to-worst and spread referenced is the spread-to-worst.

This Week in High Yield

Enthusiasm for the high-yield rally waned over the past week as issuers flooded the market with new deals ahead of this week’s Fed decision, while retail mutual and exchange traded funds reported the largest outflows of the year, equities lost ground and oil plunged to a 10-week low. The yield-to-worst/spread on the Bank of America High-Yield Index (BAML) widened 38bps/29 bps on the week quickly moving from 18-month lows to several month wides of 6.01%/+389bps.

10-Mar Yield/Level Weekly Return/Change MTD Return/Change YTD Return/Change
BAML HY 6.01% -1.22% -1.15% 1.74%
BAML Spread 389 bps 29 bps 15 bps -32 bps
Dow 20,902.98 -0.40% 0.53% 6.38%
S&P 500 2,372.6 -0.40% 0.45% 6.42%
10yr treasury 2.58% 10 bps 18 bps 13 bps

 

US retail mutual and exchange traded funds reported an outflow of $2.1 billion for the week ended March 8th, the largest weekly outflow from the asset class since the week ended Nov 16th of $2.3 billion.  This was the second consecutive week of outflows totaling just over $2.4 billion for the span. Year-to-date the market has seen outflows totaling $743 million. The issuance onslaught in high-yield land was relentless this week with 26 deals pricing for $17.55 billion in proceeds making it the busiest week of issuance on record, surpassing the previous record of $16.46 billion in September 2013.

The Bank of America Merrill Lynch High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg. BAML HY represents the index yield for the designated date, while return/change represent the index return for the period ending date. Yield referenced is the yield-to-worst and spread referenced is the spread-to-worst.  Fund flow data as reported by Lipper for the week running Thursday to the following Wednesday.

High Yield Morning Update

High yield moved lower for the sixth consecutive session yesterday pushing yields north of 6% for the first time in over two-months as oil continued to struggle and new issue paper continued to flood the market. The yield-to-worst/spread on the Bank of America High-Yield Index widened 13bps/9bps on the day to close at 6.02%/+388bps, off  45bps/31bps in just the past six trading days. The primary market was hammered with new issue paper for the third consecutive day as eight more deals for $6.65 billion priced, making it the busiest day for issuance since March 2015, as issuers continued to rush to market ahead of the Fed’s decision next week. Investors soured on the high-yield market last week as a Fed hike became near certainty, with retail funds reporting the largest outflow from the asset class since early November totaling $2.1 billion. Oil closed at its lowest level since November at $49.28, down from an 18-month high in just 10 trading days. Treasuries continued to lose ground extending their longest losing streak in five years as the yield on the 10yr Treasury note continued to edge higher closing at 2.61% this morning. US futures are bouncing a touch after what has been a tumultuous week with equity and oil futures pushing higher in early trading. The high-yield market is opening flat, taking a pause from the recent sell-off as investors survey the new landscape after the six-day slide. The forward calendar looks fairly quiet to start the day.

The Bank of America Merrill Lynch US High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg. Yield referenced is the yield-to-worst and spread referenced is the spread-to-worst.  Fund flow data according to weekly reporters to Lipper for the week running Thursday to the following Wednesday.

High Yield Morning Update

High yield continued to pullback Wednesday with yields rising to a six-week high as oil struggled, equities fell for the sixth day in the past eight and the market continues to be flooded with new issue paper. The yield-to-worst/spread on the Bank of America High-Yield Index widened 10bps/6bps on the day to close at 5.89%/+379bps. Issuance continued its recent torrid pace yesterday with six deals pricing for $4.1 billion in proceeds, making it the second busiest issuance day since June. Issuers are rushing to the market to price deals ahead of what’s now almost certainly going to be a rate hike in March. Retail investors turned on the high-yield asset class quickly this week with outflows totaling $2.1 billion through Tuesday’s close. WTI closed at $50.28, down 5.38%. Treasuries headed for their longest losing streak in five years after an ADP report surpassed expectations all but assuring a rate hike for next month, with the yield on the US 10yr Treasury note widening 5bps to 2.56%, a new YTD high. This morning US risk markets are trading in the red again as oil prices fall below $50 as US shale producers continue to add production and a rate hike appears imminent. High yield is opening generically down ¼ – ½ of a point across the board while focus remains on a very busy new issue calendar and investor start to show signs of new issue fatigue.

The Bank of America Merrill Lynch US High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg. Yield referenced is the yield-to-worst and spread referenced is the spread-to-worst.

High Yield Morning Update

The high-yield market eased Monday to open the new week as yields rose from three-year lows and spreads widened from the tightest level in 30-months with supply gaining momentum and stocks slowing down. The yield-to-worst/spread on the Bank of America High-Yield Index widened 4bps/6bps on the day to close at 5.69%/+366bps.  The primary market ramped up the pace yesterday with six new deals being added to the forward calendar and three deals pricing for $1.3 billion in proceeds. New issues came from across the ratings spectrum and use of proceeds were all for refinancing/repaying debt other than one acquisition. WTI closed little changed at $53.20. Markets are little changed this morning as focus remains on earnings and a robust new issue calendar.

The Bank of America Merrill Lynch US High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg. Yield referenced is the yield-to-worst and spread referenced is the spread-to-worst.

This Week in High Yield

It was another strong week for US risk markets with high yield and spreads dropping to multi-year lows, while equity indices continue to notch new highs as the DJIA traded up in ten of the last 12 sessions to hit a new record high at Friday’s close. The yield-to-worst and spread on the Bank of America High-Yield Index (BAML) tightened 3bps and 24bps over the past week to close at 5.63% and +360 bps, respectively. CCC credits continued to outperform BBs and Single-B’s in this risk on environment generating YTD returns for the index of 5.57% for CCC rated credits versus 2.28% for BBs and 2.85% single-B’s.  WTI closed at $53.33, down 1.2% on the week after hitting an 18-month high of $54.45 last week. The US 10yr Treasury note closed with a yield of 2.48% versus a YTD low of 2.31% at the prior Friday’s close.

3-Mar Yield/Level Weekly Return/

Change

MTD Return/

Change

YTD Return/

Change

BAML HY 5.63% 0.32% 0.07% 3.00%
BAML Spread 360 bps -24 bps -14 bps -61 bps
Dow 21,005.71 0.94% 0.94% 6.81%
S&P 500 2,383.12 0.71% 0.85% 6.85%
10yr treasury 2.48% 17 bps 9 bps 3 bps

US retail mutual and exchange traded funds reported outflows from the high-yield asset class totaling $240 million for the week ended March 1st, just the first weekly outflow in the past five weeks. Since the November elections, the high-yield asset class has taken in $8.7 billion in net inflows. Issuance resumed in the high-yield market after a two-week stretch of light volume with nine deals for $5.5 billion in proceeds. The final tally for February was 36 deals for $20 billion in proceeds, and the year to date tally now stands at 82 deals for $44.61 billion in proceeds.

The Bank of America Merrill Lynch High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg. BAML HY represents the index yield for the designated date, while return/change represent the index return for the period ending date. Yield referenced is the yield-to-worst and spread referenced is the spread-to-worst.  Ratings category returns were for the index for the YTD period ending 3/3/17.  WTI refers to West Texas Intermediate and DJIA refers to the Dow Jones Industrial Average.  Fund flow data according to weekly reporters to Lipper for the week running Thursday to the following Wednesday.

High Yield Morning Update

The Dow Jones continues to hit new record highs, notching another 300 points yesterday to close above 21,000 for the first time as investors bet on the Trump administration and global growth. After a brief pause to the high-yield bond rally on Tuesday, credit markets moved in synchrony with equities yesterday pushing the yield-to-worst/spread on the Bank of America High-Yield Index 7bps/17bps tighter to new YTD lows of 5.57%/+357bps. For perspective these levels compare to recent lows of 4.85% and +337bps back on 6/24/2014. No deals priced yesterday but activity returned with two new deals being added to the calendar for $1.3 billion in proceeds. Treasuries weakened across the curve yesterday with the yield on the US 10yr note widening 6bps to 2.45%, as markets are now pricing in an 80% probability of a March interest rate hike. WTI continues to trade with a heavy tone due to the strong dollar and following an EIA report that showed US crude stockpiles at record highs, closing at $53.83, down 0.4% over the past two sessions after hitting an 18-month high of $54.45 last week. High-yield bonds are opening mixed this morning as oil trades lower again and data showed jobless claims fell to 223k for the week ended 2/25, the fewest since March 1973. After a slow stretch for the primary market, things are heating up this morning with several new deals being added to the calendar for pricing over the next couple days.

The Bank of America Merrill Lynch US High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg. Yield referenced is the yield-to-worst and spread referenced is the spread-to-worst.

High Yield Morning Update

High yield was mixed yesterday showing the first signs of any weakness in quite some time amid steady stocks and oil, as corporate earnings drove trading. The yield to worst on the Bank of America High-Yield Index widened for the first time in a few weeks to close at 5.64%, off 2bps on the day, while the spread on the index continued to tighten closing at +374bps, -1bp on the day. The primary market remained on hold as companies make it through earning season with refinancing activity expected to resume in the near future. WTI closed at $54.01 vs $54.05. The US 10yr Treasury note closed at 2.39% vs 2.37%. Overnight and into this morning, risk markets are responding positively to President Trump’s first speech to Congress last night, while also shifting focus to the timing of a US interest rate hike. The odds of an increase in March rose to more than 60%, pushing the USD higher and dragging Treasuries lower, with the yield on the US 10yr note wider by 8bps in early trading to 2.47%. High yield is opening largely unchanged and quiet with yields and spreads sitting near multi-year lows. Focus will remain on earnings and a new issue calendar that is showing some signs of life with a few deals building for tomorrow.

The Bank of America Merrill Lynch US High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg. Yield referenced is the yield-to-worst and spread referenced is the spread-to-worst.

High Yield Morning Update

Yields and spreads continued to drop yesterday across all ratings/sectors as stocks pushed to new highs with the Dow rising for the 12th consecutive session, while the S&P has moved higher in eight of the last ten trading days and oil in six of the last ten. The technical backdrop also remains strong with a light new issue calendar over the past two weeks and net inflows into retail funds year to date. The yield-to-worst/spread-to-worst on the Bank of America High-Yield Index pushed further to YTD lows, closing tighter by another 4bps/9bps to close at 5.62%/+375bps. High-yield primary activity remained on hold as corporate earnings continue to move forward and companies begin to exit the blackout period. WTI close at $54.05 up from $53.99 and just off the 18-month high of $54.45 hit mid last week. The dollar gained ground and Treasuries weakened yesterday after the Dallas Fed president reminded markets that rates should rise “sooner than later,” moving the yield on the US 10yr Treasury note wider by 6bps on the day to 2.37%. This morning, futures are flat and the USD pared this month’s gains before President Donald Trump addresses Congress this evening. High yield is opening flat and on the quiet side with no new deals expected to price today and earnings continue to be a focus.

The Bank of America Merrill Lynch US High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg. Yield referenced is the yield-to-worst and spread referenced is the spread-to-worst.
Although information and analysis contained herein has been obtained from sources Peritus I Asset Management, LLC believes to be reliable, its accuracy and completeness cannot be guaranteed. This report is for informational purposes only. Any recommendation made in this report may not be suitable for all investors. As with all investments, investing in high yield corporate bonds and loans and other fixed income, equity, and fund securities involves various risks and uncertainties, as well as the potential for loss. High yield bonds are lower rated bonds and involve a greater degree of risk versus investment grade bonds in return for the higher yield potential. As such, securities rated below investment grade generally entail greater credit, market, issuer, and liquidity risk than investment grade securities. Interest rate risk may also occur when interest rates rise. Past performance is not an indication or guarantee of future results. The index returns and other statistics are provided for purposes of comparison and information, however an investment cannot be made in an index.