While we saw a decidedly positive tone in the equity markets over the past week on the hope we are moving towards some sort of solution in Europe, it was definitely a mixed week for high yield corporate bonds. The high yield market started the week out significantly to the downside as we faced pricing pressure from some large funds rumored to be liquidating and outflows in the ETF and mutual fund space. However, in the final days of the week we saw the buying interest increase due to what some view as bargain pricing in the space. Spreads for the Bank of America Master High Yield Index peaked on Tuesday at 910bps before ending the week at 855bps, which was still wider by 14bps from the end of last week. The yield peaked at 10.13% on Tuesday, but ended the week wider by only 24bps at 9.78%. The week saw a return of -0.80%, putting us at -2.48% YTD.1
After last week’s pick up in new issue activity, we saw only one high yield bond deal price this week for $500mm. We’ve seen the new issue market price $6.8bil in September versus only $1.2bil in August, which at least shows some recovery. In terms of fund flows, we saw the outflows resume in the high yield ETFs and mutual funds, after five weeks of inflows. Lipper reported an outflow of $363mm for the week ending on Thursday.2
As we have said in several of our recent writings, we feel that current levels in the high yield market offer investors an exceedingly attractive opportunity for yield in what we see as money good credits offering long-term value.
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