This Week in High Yield

Equities traded modestly higher this week despite further signs of a deteriorating global economy, helped by comments from Fed Chairman, Bernanke, at his semiannual speech in front of the House and Senate, which the market interpreted as supportive of further easing measures. While the equity markets continue to trade up and down manically from headline to headline, the high yield market steadily marches higher as investors gain confidence in the high yield bond story. The earnings season is well underway at this point and has provided an overriding theme of slow to no growth, with lowered expectations, but an exceptionally strong ability for U.S. corporations to successfully manage through this tough cycle by taking a conservative approach to managing their balance sheet.  This provides the perfect backdrop for debt investors. The Bank of America High Yield Index (BAML) ended the week yielding 7.08% with a spread over Treasuries of 628bps, 17bps and 13bps tighter, respectively. For performance, the BAML HY Index was better by 0.55% this week, bringing the year-to-date total to 8.46%.*

High yield bond mutual funds and ETFs reported inflows for the week totaling $821mm, the sixth straight weekly inflow for the asset class. Cash balances have remained high for most of the year, and continue to grow as money flows into the market, adding to the strong technical backdrop in the high yield market. With these elevated cash levels, high yield managers continue to look to the new issue market to help meet the some of the demand, in turn spurring a very active new issue market. This week we saw 15 deals price for total proceeds of $7.1 billion.

* Data sourced from Bloomberg.