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.