High yield bonds are weaker again today as bid wanted lists are smaller than offer wanted lists. The new-issue market only printed two deals for $870mm in proceeds on Tuesday, but $5bn of paper printed on Monday. Two small deals are expected to come today. The new-issue market is up 18% so far versus 2016, pricing 235 deals for $128B in supply, indicating to us that liquidity is generally available for issuers. It is expected the Fed will raise the Fed Funds rate at their upcoming meeting, but the longer dated Treasury bonds don’t seem to care, as the 10-yr Treasury is now at a 2.15% yield and appears to be heading to 2%, certainly contrary to all those saying the 10-yr would be hitting 3%. Oil is down again, posting a decline in 6 of the last 10 sessions. The debate continues between US Shale production vs. OPEC production limits. Gold is retreating after hitting $1300. An interesting statistic from JP Morgan this morning, “When examining yield buckets the most interesting observation is that, after decomposing the loan and bond universes, a much higher % of the bond universe carries a yield of 4% or less. For example 30% ($372bn) of US HY bonds trade below 4%, which is comparable to only 16% ($149bn) of Leveraged Loans.” These sort of statistics are reflective also of what we are seeing within the various high yield indexes, and given this, we believe active management in the high yield bond market is important as investors seek yield and value.
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