High Yield Morning Update

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.

High Yield Morning Update

The high yield secondary bond market is opening up higher today, as the new-issue calendar continues to be light, forcing buyers into the secondary market.  Only eight deals for $3.685B in proceeds priced last week, the slowest week this month.  Given Memorial Day is a week away, we expect that this week will be much the same. Month-to-date issuance is only $14B versus a $34B average over the past four years in May.  Oil is higher on OPEC talk of extending the output curbs through 2018, but the shale drillers keep increasing output as they bring on more and more wells.  Default estimates in this industry are predicted to remain low.  Lipper reported an inflow of $649M in the week ended May 17th into high yield bond mutual and exchange traded funds after two weeks of outflows totaling $2.1B.  With the light new-issue calendar this pushes buyers into the secondary market as the new-issues that do come are often well oversubscribed and everyone is getting smaller allocations.

High Yield Morning Update

Investment grade and high yield credit rallied modestly following the French election and the release of solid economic data. The VIX is at or near all-time lows, even when many are saying high yield is overvalued.  Many also say that rates are going to rise, in which case we believe investors should stay away from long duration assets like investment grade. Yesterday’s PPI numbers fueled the rising rates thesis but then the CPI numbers are out today and rates are easing.  Demographics are still the animal in the room as the world population is aging and will be the enormous force against anything the government can or will do to stoke the economic engine.  The new-issue market brought two new deals yesterday for $605M in proceeds, bringing the monthly tally to 21 deals for $10.15B in proceeds.  The new issue deal flow is 35% above 2016 year-over-year.  Lipper reported a $1.7B outflow from high yield mutual and exchange traded funds for the reporting week ended May 10^th.  This is the second consecutive week of outflows.  The key 10-Year US Treasury yield fell back below the 2.37% resistance level it breached earlier in the week.

High Yield Morning Update

Global risk markets traded with a positive tone Monday on expectations that Centrist Macron will defeat Eurosceptic Le Pen in French’s final presidential election, securing a victory for the global status quo. High yield traded at a six week high, pushing the yield to worst and spread on the Bank of America High-Yield Index tighter by 9bps each to close at 5.68% and +386bps, respectively. While no new deals priced Monday, four new deals for $1.55 billion were added to the calendar. In commodity markets, both WTI and crude closed lower on expectations of growing US supply. WTI closed at $49.23, down 0.8%. This morning markets are opening with a strong tone again, with US equity futures and WTI trading higher, while high yield is generically stronger by ¼ of a point. The focus will shift away from macro to micro this week and moving forward as Q1 earnings season kicks into full gear.

The Bank of America Merrill Lynch US High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg. Yield referenced is the yield-to-worst and spread referenced is the spread-to-worst.

This Week in High Yield

High yield rebounded over the past week, making up for half of March’s losses, as oil rallied four of the week’s five sessions, rate concerns eased and inflows returned to the asset class. The yield-to-worst/spread on the Bank of America High-Yield Index (BAML) tightened 13bps/15bps over the week to close at 5.88%/+392bps. WTI closed at $50.60, up 5.5% for the week. The US 10yr Treasury note closed at 2.39% versus 2.41% last week and a YTD high/low of 2.63%/2.38%.

Investors returned to the high-yield market last week as Lipper reported a small inflow into high-yield mutual and exchange traded funds totaling $248 million for the week ended March 29, the second consecutive weekly inflow, reversing course after an outflow totaling $5.68 billion for the week ended March 15, the second largest on record. The high-yield primary market remained active with 14 new deals pricing for $7.33 billion in proceeds for the week. All of the week’s deals were for refinancing or repaying existing debt; none were for acquisitions, to pay a cash dividend or fund an LBO. The final tally for the month was 71 deals for $42.165 billion in proceeds, making the Q1 total 144 deals for $81.225 billion in proceeds.

The Bank of America Merrill Lynch High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg. BAML HY represents the index yield for the designated date, while return/change represent the index return for the period ending date. Yield referenced is the yield-to-worst and spread referenced is the spread-to-worst.  Fund flow data according to weekly reporters to Lipper for the week running Thursday to the following Wednesday.

High Yield Morning Update

High yield continued to tightened yesterday as oil traded back up above $50 a barrel and equities held steady. The yield to worst on the Bank of America High Yield Index tightened 8bps to 5.80%.  The primary market was busy with eight deals pricing for $3.88b in proceeds, led by Six Flags (SIX) and Charter (CHTR). Lipper reported a modest outflow of $248m from mutual and exchange traded funds for the week ended 3/29, after estimating withdrawals of $675m earlier in the week. Overnight and into this morning, global stocks look poised to end a blockbuster quarter with a muted tone. Focus is now shifting towards Q2 and whether political developments in the US and Europe will cloud the brightening global economic outlook. High yield is opening flat to slightly higher and quiet.

The Bank of America Merrill Lynch US High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg. Yield referenced is the yield-to-worst and spread referenced is the spread-to-worst.

High Yield Morning Update

Yields dropped and spreads tightened yesterday as oil rebounded and stocks traded flat on what was an overall quiet day for the markets. The yield-to-worst/spread on the Bank of America High-Yield Index tightened 10bps/7bps on the day to close at 5.88%/+394 bps vs YTD lows of 5.57% and +355bps at the start of this month. The primary market remains on the slow side with just two deals pricing WTD for $2 billion in proceeds. Despite the slow week, MTD issuance volume of $36.835 billion makes it the busiest month since April 2014. WTI closed the day at $49.51, up 2.36%. The US 10yr Treasury note closed at a yield of 2.38% vs 2.42% the prior day. This morning high yield continues to trade with a positive tone amid better oil and flat stocks and treasury markets. Several drive-by deals have been announced this morning with pricing expected this afternoon and tomorrow.

The Bank of America Merrill Lynch US High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg. Yield referenced is the yield-to-worst and spread referenced is the spread-to-worst.

High Yield Morning Update

High-yield was better Tuesday as stocks rallied for only the second time in the past ten sessions and oil rebounded following a disruption in the Libyan pipeline easing supply. The yield-to-worst/spread on the Bank of America High tightened 8bps/11bps on the day to close at 5.98%/+401 bps. Issuance remained on the sideline as several deals try to grow their books amid investor concern and push-back on structure. WTI closed at $48.37, up 1.34%. The US 10-year Treasury note close at 2.42% versus 2.38% the prior day. This morning markets are little changed with equities opening slightly lower, treasuries moving higher and oil extending yesterday’s gains. High-yield is opening flat to up 1/8 of a point generically on the move in oil pricing. One new deal is expected to price this afternoon for Ascent Resources.

The Bank of America Merrill Lynch US High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg. Yield referenced is the yield-to-worst and spread referenced is the spread-to-worst.

High Yield Morning Update

High-yield continued to come under pressure yesterday to start the new week amid weak stocks, plunging oil and more redemptions from retail mutual and exchange traded funds. The yield-to-worst/spread on the Bank of America High-Yield Index each widened 5bps Monday to close at 6.06%/+412bps now wider by 49bps/57bps since hitting year to date lows in early March. The primary market was quiet and tentative Monday after pricing seven deals for $4.185 billion last week. Oil prices remained weak, dropping 0.5% on the day, down 2% over the last six sessions and down 13% from on 18-month high of $54.45 over the past four weeks. US Treasuries continued to move higher as haven assets gained ground, with the yield on the 10yr and 5yr note are down 9bps and 10bps, respectively, in the past six sessions. Outflows continue to hamper the high yield bond asset class, with Lipper estimating a $500 million move to the sideline WTD (reporting week runs Thursday to Wednesday). This morning US markets are little changed as investors weigh whether this selloff stemming from uncertainty around US policy has further to go. Oil is trading up nearly 1% in early trading, easing some of the recent pressure on the high-yield energy sector while the rest of the market trades relatively flat. No new issues are slated to price today.

The Bank of America Merrill Lynch US High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg. Yield referenced is the yield-to-worst and spread referenced is the spread-to-worst.

This Week in High Yield

The high-yield market continued to struggle last week amid plunging stocks, with the DOW falling in 9 of the past 10 sessions and dropping 1.5% last week, as well as weakening oil prices, moving lower in 6 of the past 10 sessions and off 1.66% for the week.  High yield mutual and exchange traded funds now have unwound all of the inflows since the November elections as enthusiasm over the Trump administration continues to wane. The yield-to-worst/spread on the Bank of America High-Yield Index (BAML) widened 6bps/16bps over the past week to close at 6.01%/+407 bps. WTI close at $47.97 after hitting a three-month low of $47.34 mid-week, down 1.66% for the week. The US 10yr Treasury note closed at 2.41% versus 2.50% last week.

US high-yield retail funds recorded an inflow of $736 million for the week ended March 22, snapping a three week run of outflows that saw roughly $8 billion leave the asset class. The year-to-date outflow now stands at $5.69 billion. High-yield issuance slowed and was hesitant last week with just seven deals pricing for $4.185 billion in proceeds versus 15 deals and $7.55 billion in proceeds the previous week.  Despite the slowdown over the past couple weeks, MTD new issue volume of $34.835 billion is good enough to make it the busiest month since April 2015. YTD 130 deals have priced for $73.895 billion in issuance, more than doubling last year’s total volume at this point.

The Bank of America Merrill Lynch High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg. BAML HY represents the index yield for the designated date, while return/change represent the index return for the period ending date. Yield referenced is the yield-to-worst and spread referenced is the spread-to-worst.  Fund flow data according to weekly reporters to Lipper for the week running Thursday to the following Wednesday.