Category: High Yield Weekly

13 May 2022

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.1 billion and year to date flows stand at -$35.8 billion.  New issuance for the week was $1.2 billion and year to date issuance is at $56.9 billion.

 (Bloomberg)  High Yield Market Highlights

  • U.S. junk bonds are headed for the biggest loss in five weeks as yields veer toward a fresh two-year high of 7.62% and spreads to an 18-month high of +458bps. It will mark the sixth straight weekly loss, the longest losing streak since December 2015. The losses spanned the ratings spectrum. CCC-grade bonds, the riskiest part of the market, are expected to post a loss of almost 3% for the week, the worst in the high yield market.
  • The downturn was primarily driven by rate fears that were fueled by US inflation data that bolstered the case for more aggressive monetary tightening by the Federal Reserve. That also sparked fears that the Fed may not be able to contain inflation without causing a recession, which would increase the risk of default by shaky borrowers.
  • “The macroeconomic outlook has deteriorated rather swiftly, and growth expectations have continued to decline,” Brad Rogoff, head of global fixed income research at Barclays, wrote on Friday.
  • The primary market continued to remain generally frozen amid rising cost of debt, fueled by uncertainty over the Fed and the economic outlook.
  • New bond sales volume has plunged, with year-to-date sales at $56.9b, a 75% drop from a year earlier and the lowest for the period since 2009.



(Bloomberg)  Powell Wins Senate Confirmation for Second Term as Fed Chair

  • The Senate voted to confirm Jerome Powell for a second four-year term as Federal Reserve chair on Thursday, trusting him to tackle the highest inflation to confront the country in decades.
  • The overwhelmingly bipartisan 80-19 vote comes as the Fed grapples with soaring prices amid criticism it was slow to act against a threat that’s angered Americans and hammered President Joe Biden’s popularity.
  • Powell’s Fed began raising interest rates in March and says it will keep going until price pressures cool, seeking a soft landing that doesn’t crash the economy. But critics doubt the central bank can avoid a recession as it tightens monetary policy that had been eased dramatically during the pandemic.
  • “Few institutions are more important to help steer our economy in the right direction and to fight inflation than the Fed,” Senate Majority Leader Chuck Schumer said on the Senate floor earlier in the day. “Chairman Powell presided as Fed chair during some of the most challenging moments in modern American history.”
  • Powell, 69, is Biden’s fourth Fed nominee to win confirmation. Economist Philip Jefferson was confirmed with bipartisan support on Wednesday. Lisa Cook, who was opposed by Republicans, won confirmation by the narrowest margin on Tuesday with Vice President Kamala Harris providing the tie-breaking vote. Lael Brainard was confirmed as Fed vice chair last month.
  • Powell, a Republican nominated for Fed jobs by both Democrat Barack Obama and Republican Donald Trump, is a former Carlyle Group partner and worked as a Treasury official during the administration of George H.W. Bush. He earned a law degree from Georgetown University, making him a rare non-economist to lead the Fed in recent decades.
  • Powell had near-unanimous backing in the Senate Banking Committee. Only Massachusetts Democrat Elizabeth Warren opposed him there, saying his record on deregulating financial institutions made him dangerous.
08 Apr 2022

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.5 billion and year to date flows stand at -$28.0 billion.  New issuance for the week was $6.0 billion and year to date issuance is at $49.1 billion.


(Bloomberg)  High Yield Market Highlights

  • The U.S. junk bond market is set to close the week with losses after declining for three straight sessions and yields rose 25 basis points to a three-week high of 6.32%, rising 25bps week-to-date amid broader market volatility.
  • “Risk assets sold off this week in light of increased hawkishness from the Federal Reserve,” Brad Rogoff, Barclays’ head of fixed income research, wrote on Friday.
  • The primary market priced $6b this week to make it the busiest for new issuance in two months after the slowest first quarter since 2016, with just $43b
  • Junk bond investors pulled cash from high yield funds in 11 of the 13 weeks in the first quarter, but are showing signs of demand again
  • U.S. high yield funds report a modest inflow of $0.5b for the week, the second consecutive week of inflows



(Bloomberg)  Markets Bet on Sharpest Pace of Fed Tightening Since 1994

  • Money-market traders are betting the Federal Reserve is heading for its most aggressive monetary-policy tightening in almost three decades as it fights a commodity-driven inflation spike.
  • They are pricing in a further 225 basis points of interest-rate hikes by the end of the year on top of the 25 basis points delivered in March.
  • Minutes of the Fed’s March meeting released Wednesday showed that “many” officials would have preferred to raise rates by a half percentage point but were deterred by Russia’s invasion of Ukraine. Only St. Louis Fed President James Bullard dissented in favor of a half-point hike. The Fed also signaled it will reduce its massive bond holdings at a maximum pace of $95 billion a month, further tightening credit to cool inflation.
  • The Fed hasn’t done that much tightening — 250 basis points — in one year since 1994, a famously brutal year for bond investors that even included a 75 basis-point hike. The last year there was more tightening was in the early 1980s, when Paul Volcker was in charge of the central bank. Treasuries have already lost 6.7% this year, heading for the worst annual return since Bloomberg started compiling the data in 1973.
  • With U.S. inflation heading for 8%, a rate not seen in 40 years, Fed officials have adopted a decidedly more hawkish tone. The latest move in market bets began Tuesday after Governor Lael Brainard said the central bank will continue tightening monetary policy methodically.
  • In a reversal of a recent trend, the yield curve has steepened since Brainard commented Tuesday that the Fed will shrink its balance sheet “considerably more rapidly than in the previous recovery.” The 10-year yields traded 8 basis points higher than two-year notes, after dipping below the shorter-maturity rate last week for the first time since 2019. The curve inversion last week stirred concern that the Fed’s tightening may raise the risk of a recession over time.
  • “The implication here is that over time, the balance-sheet reduction will lead to an increase in the term premium, which in turn will put upward pressure on the long end of the curve,” Tim Duy, chief U.S. economist at SGH Macro Advisors, wrote in a note to clients.
  • The minutes showed participates agreed that the maximum monthly reduction of its bond holdings, composed of $60 billion in Treasuries and $35 billion in mortgage-backed securities, would “likely be appropriate.”
25 Mar 2022

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$3.9 billion and year to date flows stand at -$31.1 billion.  New issuance for the week was $2.8 billion and year to date issuance is at $39.2 billion.


(Bloomberg)  High Yield Market Highlights

  • U.S. junk-bond investors turned to fast-food operator Yum Brands in the primary market on Thursday after inflation concerns, a hawkish Federal Reserve and the war in Ukraine drove issuance to the slowest month in two years. Yum Brands sold $1b 10-year notes, rated Ba3/BB, at 5.375%, the lower end of price talk, after underwriters received orders more than $2.9b. The bond sale was increased by $500m to $1b.
  • With yields volatile, borrowers are tapping the market when windows of opportunity arises to refinance or to fund acquisitions that have to close soon.
  • YUM Brands sold primarily to refinance 7.75% 2025 notes that were callable on April 1.
  • “The overall fundamentals are solid, with leverage back to pre- pandemic levels and higher interest coverage, which should provide a cushion against near-term macro risks and rising rates,” Barlcays’s strategist Brad Rogoff wrote on Friday.
  • U.S. junk bonds held steady for the second straight session as yields and returns were largely flat and equities rallied amid a broader risk-on sentiment.
  • While there was no serious loss of risk appetite or rising default fears priced into recent new issues, investors pulled cash out junk bond funds following a rise in yields and increased volatility.
  • The U.S. high yield funds reported an outflow for the 11th consecutive week and the longest streak of outflows since 2007.


(Bloomberg)  Powell Is Ready to Back Half-Point Hike in May If Necessary

  • Federal Reserve Chair Jerome Powell said the central bank is prepared to raise interest rates by a half percentage-point at its next meeting if needed, deploying a more aggressive tone toward curbing inflation than he used just a few days earlier.
  • Policy makers raised the benchmark lending rate by a quarter point at their meeting last week — ending two years of near-zero borrowing costs — and signaled six more hikes of that magnitude this year, based on the median projection. Powell indicated that half-point hikes may be on the table when policy makers next gather May 3-4 and at subsequent sessions.
  • “If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,” Powell said in a speech titled “Restoring Price Stability” to the National Association for Business Economics on Monday.
  • Following his formal remarks, Powell was asked by the moderator if there was anything stopping policy makers from hiking by a half point in May, which would be the first increase of that magnitude since 2000.
  • “What would prevent us? Nothing: Executive summary,” he said, drawing laughs from the audience. He added that such a decision had not been made, but acknowledged it was possible if warranted by incoming data.
  • “My colleagues and I may well reach the conclusion that we’ll need to move more quickly and if so we will do so,” he said.
  • Powell was more hawkish on Monday than at the press conference following last week’s meeting, indicating that if inflation continues to run hot he would favor a more aggressive pace of tightening. Last week he had to speak for the range of views among the 16 policy makers currently on the Federal Open market Committee.
  • Markets heard the chair’s message and moved sharply in response, sending Treasury yields spiking higher as investors increased bets that the Fed will raise interest rates by a half point in May to confront the hottest inflation in 40 years.
  • Goldman Sachs Group Inc.’s economists led by Jan Hatzius saw the comments as a hawkish signal and now expect the Fed to raise interest rates by 50 basis points at both its May and June policy meetings, followed by four 25 basis point increases in the second half of the year.
18 Mar 2022

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$2.4 billion and year to date flows stand at -$27.1 billion.  New issuance for the week was $1.0 billion and year to date issuance is at $36.4 billion.


(Bloomberg)  High Yield Market Highlights

  • U.S. junk bonds are poised to post the biggest weekly gains in almost three months after Fed Chair Jerome Powell highlighted the strength of the economy, fueling the largest three-day rally in equities since November 2020.
  • As the Federal Reserve began what is likely to be its most aggressive rate-hike campaign in two decades, Powell said the economy was strong and well-positioned to withstand tighter monetary policy.
  • Still, “a sustained rally will require more clarification about peak inflation and the economic ramifications of the ongoing Russia-Ukraine war,” Barclays’ strategists Brad Rogoff and Dominique Toublan wrote on Friday.
  • The rates curve indicates that persistently higher inflation will lead to higher short-term rates and could weigh on longer-term growth prospects, Barclays wrote.
  • The gains in high-yield debt were across the board, with CCCs, the riskiest part of the market, on track to close the week with the biggest advance in three months after rallying for two straight sessions.
  • Junk bond yields dropped 17bps to 6.12% on Thursday and spreads tightened 17bps to +369.
  • BB yields dropped 16bps to close at 5.01%, the biggest one-day fall in more than three months.
  • The Ba index posted gains of 0.69% on Thursday, and is likely to see the biggest weekly returns in three months, with gains of 0.4% so far.
  • The primary market was still quiet as borrowers wait for the markets to settle down after the FOMC decision to raise rates by 25bps, while indicating further 25bps hikes at each of the next six meetings.
  • The issuance volume stands at $36b year-to-date, the slowest first quarter since 2016, according to data compiled by Bloomberg.


(Bloomberg)  Fed Lifts Rates a Quarter Point and Signals More Hikes to Come

  • The Federal Reserve raised interest rates by a quarter percentage point and signaled hikes at all six remaining meetings this year, launching a campaign to tackle the fastest inflation in four decades even as risks to economic growth mount.
  • Policy makers led by Chair Jerome Powell voted 8-1 to lift their key rate to a target range of 0.25% to 0.5%, the first increase since 2018, after two years of holding borrowing costs near zero to insulate the economy from the pandemic. St. Louis Fed President James Bullard dissented in favor of a half-point hike, the first vote against a decision since September 2020.
  • “The American economy is very strong and well positioned to handle tighter monetary policy,” Powell told a press conference Wednesday following a meeting of the Federal Open Market Committee. “I saw a committee that is acutely aware of the need to return the economy to price stability.”
  • The hike is likely the first of several to come this year, as the Fed said it “anticipates that ongoing increases in the target range will be appropriate,” and Powell repeated his pledge to be “nimble.”
  • In the Fed’s so-called dot plot, officials’ median projection was for the benchmark rate to end 2022 at about 1.9% — in line with traders’ bets but higher than previously anticipated — and then rise to about 2.8% in 2023.
  • “The invasion of Ukraine by Russia is causing tremendous human and economic hardship,” the FOMC said in its policy statement following the two-day meeting in Washington, the first held in person — rather than via videoconference — since the pandemic began. “The implications for the U.S. economy are highly uncertain, but in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.”
  • The Fed said it would begin allowing its $8.9 trillion balance sheet to shrink at a “coming meeting” without elaborating. Powell said officials had made good progress this week in nailing down their plans and could be in a position to begin the process at their May meeting, though the FOMC had not taken a decision to do so. The purchases of Treasuries and mortgage-backed securities, which concluded this month, were intended to provide support to the economy during the Covid-19 crisis and shrinking the balance sheet accelerates the removal of that aid.
  • In new economic projections, Fed officials said they see inflation significantly higher than previously anticipated, at 4.3% this year, but still coming down to 2.3% in 2024. The forecast for economic growth in 2022 was lowered to 2.8% from 4%, while unemployment projections were little changed.
  • The pivot to tighter monetary policy is sharper than policy makers expected just three months ago, when their median projection was for just three quarter-point rate increases this year.
  • The Fed previously held off from raising rates as officials bet the inflation shock would fade once the economy returned to normal following the pandemic recession and lockdowns, though they were also cautious amid new Covid-19 variants and data showing a choppy jobs recovery.
  • Instead, price gains accelerated amid a mixture of massive government stimulus, tightening labor markets, surging commodity costs and frayed supply chains. Powell has also been operating under a Fed policy framework, adopted in mid-2020, to allow some above-target inflation in the hope of broadening employment.
  • President Joe Biden has called taming inflation his top economic priority, while fellow Democrats worry failure to restrain prices could cost them their thin congressional majorities in November’s midterm elections.
11 Mar 2022

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.3 billion and year to date flows stand at -$27.4 billion.  New issuance for the week was $0.5 billion and year to date issuance is at $35.4 billion.


 (Bloomberg)  High Yield Market Highlights

  • U.S. junk bonds are headed toward the biggest weekly loss in 17 months as yields jump to a fresh 20-month high after inflation accelerated and the war on Ukraine intensified.
  • Continuing volatility drove investors to pull cash from retail junk-bond funds for the ninth straight week, the longest losing streak since 2007
  • U.S. high yield funds reported an outflow of $1.3b for the week
  • The escalating war has increased the economic pressure on Russia, with the U.S. now calling for the end of normal trade relations, clearing the way for increased tariffs on Russian imports
  • The sanctions are expected to spur inflation even higher and slow economic growth
  • Bloomberg economist Anna Wong forecast that U.S. inflation could hit 9% as early as March or April with oil at $120 a barrel, and may end the year close to 7%
  • Bloomberg economists have lowered 2022 U.S. GDP growth forecast to 2.5% from 3.6%
  • The benchmark U.S. high yield index posts a loss of 1.29% week-to-date after reporting negative returns in three of the last four sessions
  • The losses were across the board in the high yield market. BBs were leading the pack with week-to-date losses of 1.34%
  • BB yields, the most rate-sensitive in the high yield market, also climbed to a 20- month high of 5.08% amid widespread fears of inflation disrupting growth
  • CCCs are poised to post the least losses, with 1.20% week-to-date, while yields rose to a 16-month high of 8.82%
  • The junk bond primary market has been quiet as borrowers have stayed away, waiting for some clarity on macro risks
  • The primary market has slowed to a crawl
  • The issuance volume was about $36b year-to-date, the slowest first quarter since 2009
  • As of Friday morning, the markets may recover as U.S. equity futures edged higher amid reports that some progress is being made in talks between Russia and Ukraine


 (Bloomberg)  U.S. Inflation Hit Fresh 40-Year High of 7.9% Before Oil Spike

  • U.S. consumer price gains accelerated in February to a fresh 40-year high, consistent with rapid inflation that’s become even more pronounced following Russia’s invasion of Ukraine.
  • The consumer price index jumped 7.9% from a year earlier following a 7.5% annual gain in January, Labor Department data showed Thursday. The widely followed inflation gauge rose 0.8% in February from a month earlier, reflecting higher gasoline, food and shelter costs. Both readings matched the median projections of economists in a Bloomberg survey.
  • Excluding volatile food and energy components, so-called core prices increased 0.5% from a month earlier and 6.4% from a year ago.
  • The data illustrate the extent to which inflation was tightening its grip on the economy before Russia’s war brought about a spike in commodities, including the highest retail gasoline price on record. Most economists had expected February would be the peak for annual inflation, but the conflict likely means even higher inflation prints in the coming months.
  • To combat building price pressures, the Federal Reserve is set to raise interest rates next week for the first time since 2018. At the same time, the geopolitical situation adds uncertainty to the central bank’s rate hiking cycle over the coming year.
  • Fed officials could take a more hawkish stance if energy price shocks lead to higher and more persistent inflation, but they also may take a more cautious approach if sinking consumer sentiment and declining real wages begin to weigh on growth as the war drags on.
  • The February report showed that gasoline prices rose 6.6% from the prior month and accounted for almost a third of the monthly increase in the CPI. Some of that may reflect energy price spikes resulting from the first days of Russia’s invasion during the last week of the month. The impact will be more fully captured in the March CPI report.
  • So far this month, the retail price of a regular-grade gasoline has increased 19.3% to $4.32 a gallon, according to American Automobile Association data.

Food prices climbed 1% from the prior month, the largest advance since April 2020, the CPI report showed. Compared with February last year, the 7.9% jump was the biggest since 1981.

04 Mar 2022

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.4 billion and year to date flows stand at -$26.0 billion. New issuance for the week was $1.7 billion and year to date issuance is at $34.9 billion.

(Bloomberg) High Yield Market Highlights

  • U.S. junk bonds are headed to the first back-to-back weekly gains since December with the risk-off mood easing after Federal Reserve Chair Jerome Powell said U.S. economic growth was strong enough to warrant a quarter-percentage-point interest rate hike this month.
  • That buoyed a market that had been weighed down by uncertainty over the economic outlook and the scope of the Fed’s coming interest rate hikes; traders last month speculated that the Fed could begin with a half-point rate increase.
  • Even as the war in Ukraine intensifies and commodity prices soar, credit market technicals have held up, Barclays’ strategist Brad Rogoff wrote on Friday, though he added that spreads could come under pressure near-term.
  • While sustained higher energy prices pose downside risks to the outlook, Barclays does not view them as sufficient to derail the recovery, Rogoff wrote.
  • Yields have been resilient through the week, closing unchanged at 5.66% week-to- date.
  • The 5-year and 10-year Treasury yields fell about 13bps week-to-date at close yesterday at 1.73% and 1.84%, respectively.
  • Spreads closed at +358bps, just up by 5bps
  • Junk bonds gained across ratings for the second straight week, with 0.21% returns for BBs, 0.22% single Bs and 0.15% CCCs.
  • CCCs have lost some momentum and were the worst performing segment for the second consecutive week, pushing single Bs to the top.
  • U.S. high yield may be in a holding pattern as equity futures slide and European stocks tumble to a one-year low as war risks intensified. Oil, meanwhile, is headed for the biggest weekly surge in almost two years after Russia’s invasion of Ukraine roiled global markets


(Bloomberg) Powell Backs Quarter-Point March Rate Hike, Open to Bigger Moves

  • Federal Reserve Chair Jerome Powell backed a quarter-point interest-rate hike this month to commence a series of increases and didn’t rule out a larger move at some stage, despite uncertainty caused by Russia’s invasion of Ukraine.
  • “I am inclined to propose and support a 25 basis-point rate hike,” Powell told the House Financial Services Committee Wednesday. “To the extent that inflation comes in higher or is more persistently high than that, then we would be prepared to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings.”
  • Fed officials are pivoting to tackle the fastest inflation in 40 years and a few have publicly discussed the potential need to hike by a half point some time this year if inflation comes in too hot. They get February data on consumer prices on March 10, five days before they start their next policy meeting.
  • While acknowledging the uncertainty posed by the attack on Ukraine, Powell said the need to remove pandemic policy support had not changed.
  • “The bottom line is that we will proceed but we will proceed carefully as we learn more about the implications of the Ukraine war for the economy,” he said.
  • Investors increased their bets on the pace of rate hikes this year as the Fed chief spoke, pricing in around 140 basis points of tightening starting this month — which will mark the first increase since 2018. U.S. stocks advanced and 10-year Treasury yields rose on Powell’s message that the economy is expanding with enough force to withstand higher borrowing costs.
  • Powell said the labor market is “extremely tight,” essentially a message to lawmakers that the central bank has met its maximum employment goal in current conditions, which opens the door to its inflation fight. He said employers are having difficulties filling job openings, while workers are quitting and taking new jobs, helping wages rise at the fastest pace in years.
  • “We know that the best thing we can do to support a strong labor market is to promote a long expansion, and that is only possible in an environment of price stability,” Powell said, restating a line he has used several times now that interprets the inflation fight in terms of preserving the expansion.
  • The Fed chief said it wasn’t clear how high rates would have to rise to get inflation under control, in relation to the so-called “neutral” level that neither speeds up nor slows economic activity.
  • “We talk about getting to neutral, which is a neutral rate which would be somewhere between 2% and 2.5%. It may well be that we need to go higher than that. We just don’t know,” he said, adding that he believed it was possible to deliver that tightening without causing a recession.
25 Feb 2022

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$2.3 billion and year to date flows stand at -$25.6 billion.  New issuance for the week was $1.0 billion and year to date issuance is at $33.2 billion.


(Bloomberg)  High Yield Market Highlights

  • U.S. junk bonds are headed toward the sixth straight weekly loss as yields jump to a fresh 16-month high of 5.85% amid global market turmoil after Russia’s invasion of Ukraine. This would be the longest losing streak in more than six years.
  • The primary market ground to a halt after pricing a little more than $9b this month, the slowest February since 2016. It’s also the slowest start to a year for issuance since 2016, with year- to-date volume at $33b.
  • Rising yields and steady losses in junk bonds across ratings came amid broader market turbulence this year caused by inflation concerns, a hawkish Federal Reserve and geopolitical tensions.
  • Given the lack of clarity on macro risks, “risk assets will be under pressure in the near term,” Barlcays’ strategist Brad Rogoff wrote on Friday.
  • The BB index, the most rate-sensitive part of the high-yield market, is now set to post its eighth straight weekly loss, the longest period of losses since July 2013, after yields veered toward a 19-month high of 4.83%.
  • CCCs, the riskiest part of the junk-bond market, is also headed to end the week with losses. This would be the sixth consecutive week of losses as yields rose to a new 15-month high of 8.53%.


 (Bloomberg)  What the Russian Invasion Means for Credit

  • Russia’s invasion of Ukraine will translate to more trouble for corporate debt, money managers say. Some also wonder if the latest market weakness is a buying opportunity.
  • For now, few market participants are taking that risk. Companies postponed bond sales in the U.S. and Europe on Feb. 24 and credit risk gauges surged after Russia invaded Ukraine.
  • The military action heightened volatility in global bond markets already roiled by inflation and tightening monetary policy. Now oil prices are rising to their highest levels since 2014, and wheat prices in Paris hit a record. The result of inflation plus slower growth may be stagflation that can be terrible for corporate bondholders.
  • “The escalated uncertainty in Ukraine, and the spike in commodity prices, moderates the outlook for global growth and therefore increases the risk for corporate credit,” said Matt Toms, chief investment officer of fixed-income at Voya Investment Management.
  • Borrowers who could sell debt easily on any day for much of the last two years are now having to look for windows of relative calm. Price swings in secondary markets are widening.
  • New sales of U.S. investment-grade and junk bonds will likely shut down for the remainder of the week, according to people familiar with the matter. BellRing Brands on Feb. 24 withdrew a junk-bond deal that it had started marketing earlier in the week.
  • U.S. leveraged loan prices fell 1/2 to a full point in muted secondary trading on Feb. 24, according to people familiar. Meanwhile, a gauge of U.S. credit risk spiked, with the cost to protect a basket of investment-grade dollar bonds against default rising to the highest level since July 2020.
  • But even if the global growth picture is concerning, few U.S. companies will be severely affected by the invasion at this stage, investors said.
  • “The entire global economy is going to be impacted by Russia and Ukraine, but there’s not really going to be a lot of direct impact in the U.S., in terms of issuers whose results are going to be directly impacted by what’s going on there,” said Jeremy Burton, a portfolio manager at Pinebridge Investments.
  • Prices on investment-grade bonds now may end up being a great deal in retrospect, said Nicholas Elfner, co-head of research at Breckinridge Capital Advisors.
  • “Keep your eyes on the long-term and don’t get sucked into the abyss of negativity,” Elfner said. “Short-term blips in volatility and weakness in financial markets tend to be long-term buying opportunities.”


04 Feb 2022

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$3.6 billion and year to date flows stand at -$10.6 billion.  New issuance for the week was $6.0 billion and year to date issuance is at $25.4 billion.


 (Bloomberg)  High Yield Market Highlights

  • The U.S. junk bond primary market was powered by leveraged buyouts this week as cyber security firm McAfee Corp. and Scientific Games Holdings, a gaming and lottery operator, together sold almost $3b, accounting for one-half of this week’s issuance volume as the high yield market recovered from its worst January on record.
  • Junk bond borrowers of all stripes – funding strategic acquisitions, LBOs and plain-old refinancing outstanding debt – seemed to be in a hurry to rush to the market to get ahead of the rate-hike cycle, which is widely expected to begin as early as March, and avoid the uncertainty volatility that may follow.
  • The U.S. leveraged finance market was also undergoing a shift triggered by the Federal Reserve’s signal that rate hikes may begin in the next meeting and the overall hawkish tone suggesting an end to the easy money policy.
  • The shift became evident in McAfee Corp. and Scientific Games Holdings moving a portion of bonds to term loan as the latter, with a floating rate coupon and spot higher in the capital structure, were more attractive to investors in a rising rate environment.
  • The junk bond market was broadly resilient even as cautious investors pulled cash out of high yield retail funds.
  • Investors pulled almost $4b from U.S. high yield funds, the biggest weekly outflow since March of 2021 and the fourth consecutive week of outflows, the longest streak since June of 2021.
  • While weak earnings reports and increased central bank hawkishness drove a sharp sell-off in risk assets, “it is still too early to buy the dip,” Barclays strategist Brad Rogoff wrote on Friday, adding that monetary policy uncertainty is likely to remain elevated.
  • The broader junk bond returns came under pressure on Thursday posting losses of 0.4% as yields jumped 15bps to 4.21%.
  • Junk bonds may pause as U.S. equity futures reversed gains as concerns over inflation and monetary tightening outweighed earnings optimism driven by, Inc.
  • Oil, meanwhile, has rocketed to a fresh seven-year high near $92 a barrel, and almost every indicator is pointing to the rally extending.


(Bloomberg)  U.S. Job Growth Blows Past Estimates, Defying Gloom Over Omicron

  • U.S. employers extended a hiring spree last month despite a record spike in Covid-19 infections and related business closures, with surging wages adding further pressure on the Federal Reserve to raise interest rates.
  • Nonfarm payrolls increased 467,000 in January in a broad-based advance that followed substantial upward revisions to the prior two months, a Labor Department report showed Friday. The unemployment rate ticked up to 4%, and average hourly earnings jumped.
  • The median estimate in a Bloomberg survey of economists called for a 125,000 advance in payrolls, though forecasts ranged widely. A variety of factors including omicron, seasonal adjustment and the way workers who are home sick are factored in make interpreting the January data challenging.
  • The surprise display of strength suggests the labor market continues to improve, despite the temporary disruption from record-high levels of coronavirus infections and the resulting absenteeism from work. The data further reinforce Fed Chair Jerome Powell’s description last week of the labor market as “strong” and validate the central bank’s intention to raise interest rates in March to combat the highest inflation in nearly 40 years.
  • The dollar jumped along with Treasury yields following the report. U.S. stock-index futures dipped slightly. Investors began to price in the slight possibility of a sixth quarter-point Fed rate hike by the end of this year, while continuing to see a March increase as a lock and nudging up the chance of a 50-basis-point jump.
  • Meanwhile, the Labor Department’s report showed average hourly earnings rose 0.7% in January and 5.7% from a year ago, further fanning concerns about the persistence of inflation. The average workweek dropped.
  • The faster-than-expected advance in pay could fuel market concerns about the Fed taking an even more aggressive stance on inflation this year.
  • Despite the better-than-expected report, the impact of omicron on the labor market in January was substantial. There were 3.6 million employed Americans not at work due to illness, more than double that in December. Meanwhile, 6 million people were unable to work in the month because their employer closed or lost business due to the pandemic, roughly twice that in December.
  • The potential for a weak — or even negative — payrolls print, largely because of virus-related disruptions, was well telegraphed in the days ahead of the report, including by White House and Fed officials.
  • The job gains were broad based, led by a 151,000 advance in leisure and hospitality. Transportation and warehousing, retail trade and professional and business services also posted solid increases.
  • The solid employment growth in several categories may reflect businesses choosing to retain more holiday workers than normal in the face of a tight labor market.
14 Jan 2022

CAM High Yield Weekly Insights

 Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.6 billion and year to date flows stand at -$1.0 billion.  New issuance for the week was $6.0 billion and year to date issuance is at $10.5 billion.

 (Bloomberg)  High Yield Market Highlights

  • The U.S. junk-bond market rebounded from last week’s losses and is on track to end the week with gains, powered by a jump in oil prices and shrugging off outflows from retail funds. The rally boosted the primary market, which has seen $6 billion price.
  • The risk-on mood was evident as two first-time issuers came to market. Borrowers sold debt to fund a dividend and buy back shares even as investors pulled cash from U.S. high-yield funds.
  • The broader junk-bond index has made modest gains of 0.28% week-to-date after posting a small loss of 0.05% on Thursday.
  • Junk-bond index yields rose to 4.51% yesterday, up 6bps, and is down 9bps week-to-date.
  • The CCC index has gained 0.31% week-to-date after posting a modest loss of 0.02% yesterday.
  • CCC yields rose 4bps to close at 6.95%, down 11bps week-to-date.
  • The markets may waver as U.S. equity futures fluctuated ahead of the earnings season as investors turn away from inflation concerns and Federal Reserve policy. And oil, meanwhile, headed for a fourth straight weekly gain, the longest streak since October.


(Bloomberg)  U.S. Inflation Hits 39-Year High of 7%, Sets Stage for Fed Hike

  • U.S. consumer prices soared last year by the most in nearly four decades, sapping the purchasing power of American families and setting the stage for the Federal Reserve to begin hiking interest rates as soon as March.
  • The consumer price index climbed 7% in 2021, the largest 12-month gain since June 1982, according to Labor Department data released Wednesday. The widely followed inflation gauge rose 0.5% from November, exceeding forecasts.
  • Excluding the volatile food and energy components, so-called core prices accelerated from a month earlier, rising by a larger-than-forecast 0.6%. The measure jumped 5.5% from a year earlier, the biggest advance since 1991.
  • The increase in the CPI was led by higher prices for shelter and used vehicles. Food costs also contributed. Energy prices, which were a key driver of inflation through most of 2021, fell last month.
  • The data bolster expectations that the Fed will begin raising interest rates in March, a sharp policy adjustment from the timeline projected just a few months ago. High inflation has proven more stubborn and widespread than the central bank predicted amid unprecedented demand for goods along with capacity constraints related to the supply of both labor and materials.
  • Meanwhile, the unemployment rate has now fallen below 4%. Against this evolving backdrop, some Fed policy makers have said that it could be appropriate to begin shrinking the central bank’s balance sheet soon after raising rates.
  • “In terms of where the Fed is on their dual mandate — inflation and the labor market — they’re basically there,” Michael Gapen, chief U.S. economist at Barclays Plc, said on Bloomberg Television. “I don’t really think anything stops them going in March except one of these kind of outlier events. I think they’re ready.”


(Bloomberg)  U.S. Retail Sales Slide Most in 10 Months on Inflation, Omicron

  • U.S. retail sales slumped in December by the most in 10 months, suggesting the fastest inflation in decades is taking a greater toll on consumers just as the nation confronts more coronavirus infections.
  • The value of overall purchases decreased 1.9%, after a revised 0.2% gain a month earlier, Commerce Department figures showed Friday.
  • The median estimate in a Bloomberg survey called for a 0.1% drop in overall retail sales from the prior month.
  • The year-end slide in retail purchases sets up for a tepid handoff to the first quarter. Combined with the impact from the omicron variant, which is denting outlays for services such as travel and dining out, the figures help explain why economists project household spending to soften.
  • Furthermore, falling price-adjusted wages, dwindling savings and the end of the government’s pandemic-related financial programs suggest a more moderate pace of spending.
  • December, at the tail end of the holiday-shopping season, is traditionally a solid month for retail sales. However, concerns about shipping delays prompted many consumers to shop earlier than usual to ensure gifts arrived on time. Because the figures are adjusted for seasonal variations, the earlier shopping may have contributed to the weaker-than-expected figures.


(Bloomberg)  Fed’s Brainard Says Curbing Inflation Is ‘Most Important Task’

  • Federal Reserve Governor Lael Brainard said tackling inflation and getting it back down to 2% while sustaining an inclusive recovery is the U.S. central bank’s most pressing task.
  • “Inflation is too high, and working people around the country are concerned about how far their paychecks will go,” Brainard said in remarks prepared for a confirmation hearing before the Senate Banking Committee. “Our monetary policy is focused on getting inflation back down to 2% while sustaining a recovery that includes everyone. This is our most important task.”
  • Brainard was nominated by President Joe Biden to serve as Fed vice chair.
10 Dec 2021

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.2 billion and year to date flows stand at -$6.2 billion.  New issuance for the week was $5.2 billion and year to date issuance is at $459.9 billion.

 (Bloomberg)  High Yield Market Highlights

  •  The recent selloff in the U.S. junk-bond market looks like the distant past as the index is now poised to post gains for the second consecutive week, and potentially the biggest gains in more than three months.
  • The riskiest segment of the junk bond market, CCCs, are also on track to close the week with the highest returns since the end of August and are likely to be the best-performing asset class in the U.S. fixed-income market.
  • Returns on the broader junk-bond index week-to-date stood at 0.67% and CCC gains at 0.8%.
  • As investors rush back to the asset, U.S. high-yield funds saw an inflow for the week after outflows the two previous weeks.
  • “The late November weakness in risk assets has come and gone, with sentiment reversing completely in December,” Barclays strategist Brad Rogoff wrote on Friday.
  • In corporate cash markets, the high-yield to investment-grade spread has shrunk after the recent decompression, Barclays wrote in the note.
  • The primary market was steady pricing deals to take the week’s tally to more than $5b.
  • The broader junk bond yields rose 6bps to close at 4.46% but will end the week lower for the second time this month.
  • The Single B index may see the biggest weekly gains in 12 months, with week-to-date returns of 0.72%.
  • CCC yields closed at 7.06% and may end the week lower to see the biggest weekly drop in more than three months.


  (Wall Street Journal)  U.S. Jobless Claims Fall to Lowest Level in 52 Years

  • Worker filings for unemployment benefits hit the lowest level in more than half a century last week as a tight labor market keeps layoffs low.
  • Initial jobless claims, a proxy for layoffs, fell to 184,000 in the week ended Dec. 4, the lowest level since September 1969, the Labor Department said Thursday. That was close to a recent record total of 194,000 recorded in late November.
  • The prior week’s level was revised up to 227,000. The four-week moving average, which smooths out weekly volatility, fell to 218,750.
  • Unemployment claims have been steadily falling all year as the labor market has tightened. They have now fallen below where they were before the pandemic caused layoffs to surge in March 2020. Claims averaged 218,000 in 2019, the year before the pandemic hit the U.S.
  • Economists say seasonal volatility around the holiday season may have contributed to last week’s low number.
  • The decline in new claims is an indication that employers are reluctant to lay off workers as jobs are plentiful, consumer demand is high and the pool of prospective workers remains lower than before the pandemic.
  • “We expect claims will start to more consistently hover around pre-Covid averages of 220,000 or perhaps slightly lower given current tight labor market conditions,” said Nancy Vanden Houten, lead economist at Oxford Economics.
  • More unemployed workers should eventually get new jobs as they exhaust their benefits, she added.
  • The unemployment rate fell to 4.2% in November from 4.6% in October, the Labor Department reported Friday. The share of people ages 25 to 54 who are either working or looking for work rose to 82.1% from 81.9%, a sign that prime-age Americans are starting to get back into the labor force. But the labor-force participation rate for that age group remains below where it was in February 2020, when it stood at 83.1%.
  • “The overriding dynamic in the job market of late has been this shortage of workers,” said Mark Hamrick, senior economic analyst at Bankrate. “The issue of fresh job loss has not been key for many months now.”