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.

This Week in High Yield

High-yield bonds continued to perform well this week with little headline distraction and amid continued optimism over the Trump administration, a strong earnings season to date, both equities and oil trading at 2017 highs, easing Treasury yields, retail inflows to the asset class, a lack of primary volume and a benign default outlook moving forward. The yield to worst and spread on the Bank of America High-Yield Index (BAML) reached levels not seen since September 2014 this week, closing at 5.66% and +384 bps, respectively, 11bps and 2bps tighter from last Friday’s close. Within the index, CCC credits continued to outperform BB’s and Single-B’s, generating a YTD return of 5.02% versus 2.07% for BB’s and 1.47% for B’s as investors remain willing to reach out on the risk curve. WTI closed at $53.99, up 1% for the week after hitting an 18-month high of $54.45 mid-week. Treasury yields eased this week after the Fed’s most recent minutes pointed to May rather than a March rate hike, with the yield on the US 10yr Treasury note tightening 10bps to 2.31%, its lowest Friday close of 2017.

Index 24-Feb Yield/Level Weekly Return/Change MTD Return/Change YTD Return/Change
BAML HY 5.66% 0.57% 1.31% 2.68%
BAML Spread 384 bps -2 bps -16 bps -37 bps
Dow 20,821.76 0.99% 5.16% 5.81%
S&P 500 2367.34 0.73% 4.12% 6.09%
10yr Treasury 2.31% -10 bps -14 bps -13 bps

US high-yield retail mutual and exchange traded fund flows remained positive for the week ended Feb 22nd, totaling $726 million, which was the largest inflow into the asset class since the first week of the year. This marked the fourth straight weekly inflow for the asset class totaling $1.74 billion over that span and the sixth inflow in the past eight weeks. YTD high-yield retail mutual and exchange traded funds have taken in $1.62 billion in inflows. High-yield issuance was tempered last week with six deals pricing for $2.815 billion in proceeds. Despite the slowdown in recent activity, YTD issuance volume remains up nearly 3x the activity we saw in the first two months of 2016 with 73 deals for $39.06 billion so far in 2017.

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.
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.

High Yield Morning Update

High-yield continued to grind tighter yesterday on the back of stable equities, higher oil price, steady earnings and a supportive technical backdrop as funds reported more inflows. The yield-to-worst/spread on the Bank of America High-Yield Index tightened 4bps/1bp on the day to close at 5.65%/+377bps, both new 2017 lows. Issuance was slow again Thursday with just one deal pricing for $600 million in proceeds, taking the week’s issuance to $1.1 billion, the lowest weekly total since the opening week of the year.  US high-yield retail mutual and exchange traded funds reported an inflow of $726 million for the week ended Feb 22, after last week’s $157 million inflow.  The US 10yr Treasury note closed at 2.37% yield vs 2.41% yesterday, as the likelihood of a March Fed hike eased. WTI closed at an 18th month high of $54.45, up 1.60% on the day. US markets are trading lower in early trading this morning as the Trump trade takes a pause and oil moves lower after US crude inventories rose for a seventh straight week. Focus for high-yield investors today will continue to be on earnings along with two deals that are set to price today to close out what has been a slow week of issuance.

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. 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

The rally continued to power forward yesterday in US risk markets as equities hit another new record high and yields/spread continuing to compress in the high-yield market while oil hit a new 18-month high this morning. The yield-to-worst/spread on the Bank of America High-Yield Index both set 2017 lows yesterday closing at 5.69%/+378bps, each tighter by 3bps on the day. The primary market priced one add-on drive by deal yesterday for United Rentals for $500 million, the first deal of the week. While YTD issuance is up almost 200% from last year at this junction, activity has slowed dramatically over the past week and a half due to an absence of any big M&A activity and the surge of refinancing activity early in the year cleaning up a good chunk of the near-term need. The Fed released the minutes from its most recent meeting yesterday afternoon, reinforcing the widely held view that they were on hold for the immediate future amid an outlook for steady global growth and strong US data, with the first rate hike likely coming in May. Treasury yields eased a touch on the day with the US 10yr note closing at 2.41%, 2bps tighter on the day. This morning markets are opening risk-on due to positive earnings updates, with equity futures higher and high yield well bid. Oil is moving higher in early trading after US data showed a surprise decline in inventories, suggesting that a global glut could be easing after moves by OPEC to cut production.

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 remained well bid Tuesday after the long holiday weekend with yields and spread trading at 2014 levels as equity markets continue to set new records every day and oil hit a new 2017 high. The yield-to-worst/spread on the Bank of America High-Yield Index tightened 4bps/5bps yesterday to close at 5.72%/+381bps, both new YTD lows for the index. The primary market remained on hold with no new deals announced or pricing yesterday after just three deals last week. Oil traded higher Tuesday after a senior OPEC official said he would meet with US shale producers next month in an attempt to address the recent uptick in US rig counts and production. WTI finished up 1.24% at a new YTD high of $54.06. High yield remains well bid this morning in early trading as optimism surrounding global growth and improved corporate earnings continue to lift the market. The Fed is set to release its latest minutes this afternoon, which investors hope will offer more clues on the path of US interest rates; the market is currently pricing in a 38% chance of a hike in March. With a lack on new issue volume, investors will continue to focus on earnings while looking for opportunities to put money to work in the secondary market.

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

Equity markets closed at a record high again on Friday as improving economic data and solid earnings along with a supportive Fed continued to fuel the rally over the past week, while high-yield remained resilient albeit range bound trading little changed for the week on small inflows to the asset class. The yield to worst and spread on the Bank of America High-Yield Index (BAML) finished the week 3bps and 4bps tighter at 5.77% and +386bps, respectively, both continue to linger at 30-month lows. For this index, CCC bonds continue to outperform BBs and single-B credits YTD, generating returns of 3.90% for CCC versus 1.73% for BB and 1.99% B. WTI closed at $53.36, down 0.9% from last Friday’s close, remaining in a tight range with a YTD low of $50.82 and a high of $53.99. Treasuries were little changed on the week with the yield on the US 10yr note closing up 1bp to 2.42%.

  17-Feb Level/Spread Weekly Return/Change MTD Return/Change YTD Return/Change
BAML HY 5.77% 0.20% 0.74% 2.10%
BAML Spread 386 -4 bps -14 bps -35 bps
Dow 20,624.05 1.88% 4.13% 4.77%
S&P 500 2,351.16 1.60% 3.36% 5.32%
10yr treasury 2.42% 1 bps -4 bps -3 bps

Retail mutual and exchange traded funds reported inflows of $441 million for the week ended Feb 8th after a brief stretch of two weekly outflows (according to Lipper). Funds have reported inflows for five of the seven weeks YTD and in 10 weeks since the November election results. YTD, the high-yield asset class has taken in $917 million in inflows. Issuance activity in the high-yield market was slow this week with just three deals for $1.755 billion pricing, the slowest week YTD. This comes after the busiest week of the year last week that saw 19 deals for $9.96 billion in proceeds. 30 deals for $17.235 billion have priced MTD taking the 2017 total to 67 deals for $36.245 billion.

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 continued to tighten yesterday, with prices having risen the last four trading sessions while yields continuing to linger around 30-month lows. Equities closed at new all-time highs while oil was little changed at ~$53 a barrel. Primary activity resumed with two new issues for $1.25b pricing. Retail mutual and exchange traded funds continued to see modest inflows, with $227m reported WTD (reporting week runs Thursday to Wednesday). Overnight, European shares fell for the first time in eight days, the USD fell, gold climbed, and Treasuries advanced after falling for five days. Earnings continue to be the focus for the market with many more companies reporting today, along with two more new deals on the calendar.

High Yield Morning Update

High yield tightened modestly yesterday as equities and oil traded higher. The primary market was quiet for a second day in a row with no new deals pricing and Lipper reported an estimated $130m of inflows to retail mutual and exchange traded funds week to date (with reporting week running Thursday to Wednesday). This morning, data showed that US retail sales rose more than forecast and that the US cost of living increased in January by the most since February 2013. Earnings continue to be a focus with many high yield issuers reporting, while the market remains strong in general.

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.