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.