High Yield Morning Update

High yield bonds opened the holiday shortened week slightly better and today is no different.  Inflows into the asset class are keeping a bid in the secondary market as the new-issue market is light.  Despite oil’s slide here into the $48-range, the bonds of these companies are largely not weakening in sympathy.  We have seen a large rebound in the energy sector and the high yield market overall over the last fifteen months, helped by inflows into the asset class and the search for yield, now with many of the highly levered companies within the market and indexes trading tight, often in line with lower levered credits (thus why we believe active management is important in today’s market as you look for yield).  The 10-year Treasury yield continues to fall despite decent economic releases.  India and China too had stable economic reports thus easing concerns that those economies will be a drag on the US.  With little getting done on the Trump agenda and only about six weeks of work left before Congress takes their August recess, it appears the Fed hikes may not be as robust and often as was predicted several months ago.  The yield-to-worst (YTW) on the JP Morgan US High Yield Index dipped back below 6%, just a few basis points off the multi-year low of 5.95%1, which is not surprising since the yield on the 10-year has also come down some forty basis points from this year’s high and the below average default outlook. 

1  Jantzen, Nelson, CFA and Peter Acciavatti, “JPM High-Yield and Leverage Loan Morning Intelligence,” J.P. Morgan North American Credit Research, 5/31/17, https://markets.jpmorgan.com/?#research.na.high_yield.

High Yield Morning Update

High yield bonds finished slightly higher yesterday and are opening slightly higher today.  Much of the focus was on the new-issue market as three deals came for $1.1B in proceeds, bringing this week’s totals to nine deals for $4.65B in proceeds.  A few more deals are expected today for a total close to $5B in proceeds.  OPEC agreed to keep their curbs in place through March of 2018 but oil is still off a bit.  The battle will wage on between OPEC production cuts and the US Shale production increases.  The question we see is, can the US Shale producers raise enough money to keep bringing on more wells/production after the “easy” wells are brought back on?  But, nothing has changed here, as decline rates in the Shale basins are still very steep and costly.  Treasury yields are slightly higher this morning.  At 2.26%, the 10-yr Treasury is well below the YTD high of 2.62%, even in the face of a probable Fed hike next month.  Could it because the expected US GDP growth rate most likely won’t be fueled by tax and business reform as the dysfunction in Washington is at epic levels?  With a small inflow into retail mutual and exchange traded funds yesterday, it looks like the index ETF’s are buyers this am.  The yield-to-worst on the JP Morgan US High-Yield Index stands at 6.01% versus the yield-to-worst for the JP Morgan European Currency High Yield Index at 3.54%, with spreads also substantially higher for the US market versus the European market.1

1  Jantzen, Nelson, CFA and Peter Acciavatti, “JPM High-Yield and Leverage Loan Morning Intelligence,” J.P. Morgan North American Credit Research, 5/25/17, https://markets.jpmorgan.com/?#research.na.high_yield.

High Yield Morning Update

The high yield markets are a mixed bag today as the struggle continues between the need for yield by retail and institutional investors versus a market that is at a lower yield relative to historical levels.  Demographics and low Treasury yields account for this but the default rate for this asset class is also very low.  JP Morgan says the implied versus actual default rate is 1.74% and 1.84%, respectively1, so the expected loss through defaults according to these numbers is low.  Equities, Treasury yields, oil and gold are all flat today as I think everyone is waiting on the Fed Minutes due out in a couple of hours and is trying to digest the weaker housing numbers, the terrorist attack developments and where the government budget and tax cuts will ultimately fall out.  The new-issue market is the busiest in ten weeks with six deals for $3.55B in proceeds already in the books for the first two days this week.  Despite a favorable new-issue market, Lipper is estimating net outflows YTD from high yield mutual and exchange traded funds to be $8.6B.  It appears that SMA’s for pension and insurance companies are keeping the bid in the market as both have to match liabilities to pay their bills.  On the energy side, even though oil is up nine of ten sessions the wager continues between OPEC keeping their curbs on versus shale producers adding rigs and output.

1  Jantzen, Nelson, CFA and Peter Acciavatti, “JPM High-Yield and Leverage Loan Morning Intelligence,” J.P. Morgan North American Credit Research, 5/24/17, https://markets.jpmorgan.com/?#research.na.high_yield.

High Yield Morning Update

The high yield secondary bond market is opening up higher today, as the new-issue calendar continues to be light, forcing buyers into the secondary market.  Only eight deals for $3.685B in proceeds priced last week, the slowest week this month.  Given Memorial Day is a week away, we expect that this week will be much the same. Month-to-date issuance is only $14B versus a $34B average over the past four years in May.  Oil is higher on OPEC talk of extending the output curbs through 2018, but the shale drillers keep increasing output as they bring on more and more wells.  Default estimates in this industry are predicted to remain low.  Lipper reported an inflow of $649M in the week ended May 17th into high yield bond mutual and exchange traded funds after two weeks of outflows totaling $2.1B.  With the light new-issue calendar this pushes buyers into the secondary market as the new-issues that do come are often well oversubscribed and everyone is getting smaller allocations.

High Yield Morning Update

Investment grade and high yield credit rallied modestly following the French election and the release of solid economic data. The VIX is at or near all-time lows, even when many are saying high yield is overvalued.  Many also say that rates are going to rise, in which case we believe investors should stay away from long duration assets like investment grade. Yesterday’s PPI numbers fueled the rising rates thesis but then the CPI numbers are out today and rates are easing.  Demographics are still the animal in the room as the world population is aging and will be the enormous force against anything the government can or will do to stoke the economic engine.  The new-issue market brought two new deals yesterday for $605M in proceeds, bringing the monthly tally to 21 deals for $10.15B in proceeds.  The new issue deal flow is 35% above 2016 year-over-year.  Lipper reported a $1.7B outflow from high yield mutual and exchange traded funds for the reporting week ended May 10th.  This is the second consecutive week of outflows.  The key 10-Year US Treasury yield fell back below the 2.37% resistance level it breached earlier in the week.

High Yield Morning Update

Global risk markets traded with a positive tone Monday on expectations that Centrist Macron will defeat Eurosceptic Le Pen in French’s final presidential election, securing a victory for the global status quo. High yield traded at a six week high, pushing the yield to worst and spread on the Bank of America High-Yield Index tighter by 9bps each to close at 5.68% and +386bps, respectively. While no new deals priced Monday, four new deals for $1.55 billion were added to the calendar. In commodity markets, both WTI and crude closed lower on expectations of growing US supply. WTI closed at $49.23, down 0.8%. This morning markets are opening with a strong tone again, with US equity futures and WTI trading higher, while high yield is generically stronger by ¼ of a point. The focus will shift away from macro to micro this week and moving forward as Q1 earnings season kicks into full gear.

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

High yield rebounded over the past week, making up for half of March’s losses, as oil rallied four of the week’s five sessions, rate concerns eased and inflows returned to the asset class. The yield-to-worst/spread on the Bank of America High-Yield Index (BAML) tightened 13bps/15bps over the week to close at 5.88%/+392bps. WTI closed at $50.60, up 5.5% for the week. The US 10yr Treasury note closed at 2.39% versus 2.41% last week and a YTD high/low of 2.63%/2.38%.

31-Mar Weekly Return/Change MTD Return/Change YTD Return/Change
BAML HY 5.88% 0.94% -0.21% 2.71%
BAML Spread 392 bps -15 bps 18 bps -29 bps
Dow 20,663.22 0.32% -0.60% 5.19%
S&P 500 2,362.72 0.82% 0.12% 6.07%
10yr treasury 2.39% -11 bps 0 -6 bps

Investors returned to the high-yield market last week as Lipper reported a small inflow into high-yield mutual and exchange traded funds totaling $248 million for the week ended March 29, the second consecutive weekly inflow, reversing course after an outflow totaling $5.68 billion for the week ended March 15, the second largest on record. The high-yield primary market remained active with 14 new deals pricing for $7.33 billion in proceeds for the week. All of the week’s deals were for refinancing or repaying existing debt; none were for acquisitions, to pay a cash dividend or fund an LBO. The final tally for the month was 71 deals for $42.165 billion in proceeds, making the Q1 total 144 deals for $81.225 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.  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 tightened yesterday as oil traded back up above $50 a barrel and equities held steady. The yield to worst on the Bank of America High Yield Index tightened 8bps to 5.80%.  The primary market was busy with eight deals pricing for $3.88b in proceeds, led by Six Flags (SIX) and Charter (CHTR). Lipper reported a modest outflow of $248m from mutual and exchange traded funds for the week ended 3/29, after estimating withdrawals of $675m earlier in the week. Overnight and into this morning, global stocks look poised to end a blockbuster quarter with a muted tone. Focus is now shifting towards Q2 and whether political developments in the US and Europe will cloud the brightening global economic outlook. High yield is opening flat to slightly higher and quiet.

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 dropped and spreads tightened yesterday as oil rebounded and stocks traded flat on what was an overall quiet day for the markets. The yield-to-worst/spread on the Bank of America High-Yield Index tightened 10bps/7bps on the day to close at 5.88%/+394 bps vs YTD lows of 5.57% and +355bps at the start of this month. The primary market remains on the slow side with just two deals pricing WTD for $2 billion in proceeds. Despite the slow week, MTD issuance volume of $36.835 billion makes it the busiest month since April 2014. WTI closed the day at $49.51, up 2.36%. The US 10yr Treasury note closed at a yield of 2.38% vs 2.42% the prior day. This morning high yield continues to trade with a positive tone amid better oil and flat stocks and treasury markets. Several drive-by deals have been announced this morning with pricing expected this afternoon and 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

High-yield was better Tuesday as stocks rallied for only the second time in the past ten sessions and oil rebounded following a disruption in the Libyan pipeline easing supply. The yield-to-worst/spread on the Bank of America High tightened 8bps/11bps on the day to close at 5.98%/+401 bps. Issuance remained on the sideline as several deals try to grow their books amid investor concern and push-back on structure. WTI closed at $48.37, up 1.34%. The US 10-year Treasury note close at 2.42% versus 2.38% the prior day. This morning markets are little changed with equities opening slightly lower, treasuries moving higher and oil extending yesterday’s gains. High-yield is opening flat to up 1/8 of a point generically on the move in oil pricing. One new deal is expected to price this afternoon for Ascent Resources.

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.