Category: High Yield Weekly

17 Sep 2021

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.7 billion and year to date flows stand at -$2.0 billion.  New issuance for the week was $12.7 billion and year to date issuance is at $363.5 billion.

 (Bloomberg)  High Yield Market Highlights 

  • The riskiest segment of the market, CCCs, is poised to end the week as the best performing asset class, with gains of 0.33%, fueled by rising oil prices.
  • The broader junk bond index is also set to post gains for fourth consecutive week, with returns of 0.16%
  • Junk bond yields are still hovering well below 4%, closing at 3.76% on Thursday, just 23bps away from the all-time low of 3.53%
  • It felt like the calm after a storm in the primary market with no new issues pricing or launching a roadshow on Thursday, after almost $13b priced, including the debut note sale of cryptocurrency trading platform Coinbase Global
  • The junk bond calendar is steadily building up as investors make room for Medline Industries, the biggest leveraged buyout since the global financial crisis
  • More borrowers are expected to tap the market as yields continue to drop and spreads tighten in the high yield market
  • BB yields closed at 2.88%, just 2bps above the record low of 2.86%
  • Spreads were at a 19-month low of +190bps
  • Single B yields closed at 4.19%, down 1bp, and spreads tightened 4bps to +314bps
  • U.S. equity futures slid and European stocks reversed gains as investors evaluated the resilience of the global economic recovery amid concerns from the Delta strain and risks from China.  Traders are waiting for August retail sales numbers, after China’s disappointing data yesterday, for cues on Federal Reserve’s taper plans. Meanwhile, oil is headed for a fourth weekly gain supported by signs of a tighter market and wider rally in energy prices.

(Bloomberg)  Gensler Turns Spotlight on Bond Prices

  • After U.S. Securities and Exchange Commission Chairman Gary Gensler signaled he may overhaul bond market regulations, industry experts zeroed in on just how opaque trading can be.
  • Gensler, who testified Sept. 14 before the Senate Banking Committee, said in prepared remarks released beforehand that he wants to “bring greater efficiency and transparency” to the trading of corporate bonds, municipal bonds and mortgage-backed securities. He offered little detail on what new rules might look like.
  • Market watchers have suggestions, a year after a liquidity breakdown early in the pandemic forced the Federal Reserve to backstop the bond market. A big source of angst: especially when compared with other key financial assets like stocks, it can take a lot more effort to figure out the price of a bond.
  • “Pre-trade transparency is a focus,” said Kumar Venkataraman, a finance professor at Southern Methodist University and former member of the SEC’s Fixed Income Market Structure Advisory Committee. “If you’re a large, sophisticated investor, you receive quotes from many dealers and see the best price. If you’re less sophisticated, you might get a less competitive bid.”
  • Currently, corporate bond trades must be reported to the Financial Industry Regulatory Authority’s Trace system no more than 15 minutes after they’re executed — a deadline that feels like an eternity in the era when stock and futures traders fret about microseconds.
  • And before trades are placed, there are no publicly available price quotes. To get those can require making phone calls or sending electronic requests for quotes to a bunch of banks and brokers.
  • A potential solution would require bond brokers to report their offered prices to a centralized system, which is how it’s worked in the U.S. stock market since the 1970s. That could make the business more efficient by stitching together all the different markets where bonds trade. In stocks, for instance, all orders are supposed to be automatically routed to the market with the best price.
  • Sell-side banks have little incentive to provide greater transparency, since it could cut into their profits. And reporting quotes could be a costly and time-consuming process that banks currently have little interest in participating in, Venkataraman said.
  • Don’t expect corporate bonds to begin trading in a centralized system like equities anytime soon, says Kevin McPartland, head of research for market structure at Coalition Greenwich.
  • “The bond market is still very different from the equity market in terms of how it trades and in terms of the market participants,” he said. “Bond markets are by and large institutional markets. So we have a very informed consumer if you will.”
  • The bond-market crisis of March and April 2020 is fresh in regulators’ minds. Government officials appear to view the unprecedented steps taken by the Fed in March 2020 as a mandate to address long-standing concerns that bond liquidity disappears in bad times.
  • Gensler has targeted market transparency before. The opacity of the swaps market was one of the reasons why the 2008 financial crisis was so severe, since it was extremely difficult to untangle the connections between Wall Street banks who held the derivatives. Gensler, as chairman of the U.S. Commodity Futures Trading Commission, oversaw a push to get more of that business done on public markets.
27 Aug 2021

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 -$5.2 billion.  New issuance for the week was $1.4 billion and year to date issuance is at $350.4 billion.

 (Bloomberg)  High Yield Market Highlights 

  • The riskiest part of the junk bond market is on track to post the first weekly gains in seven weeks and the biggest in six months.  With the primary market at a virtual standstill, CCC yields may see the biggest weekly decline in almost three months as investors steadily reposition themselves following a brief sell-off.
  • The broader U.S. junk bond index is poised to end three weeks of declines, and is on track to post the biggest weekly gains in more than two months
  • The index yields may see the first weekly drop in seven weeks
  • The CCC index gained on Thursday for the fifth straight session, with returns of 0.1%. The week-to-date returns stood at 0.62%, the biggest since February 5th
  • Yields dropped 5bps to close at 6.42% yesterday and the week-to-date drop is 23bps
  • Should the trend hold, it is likely to see the biggest weekly decline since May 28
  • The overall index yield was unchanged on Thursday while it fell 15bps week-to-date, to make it the biggest in eight weeks
  • The primary market is expected to resume business after the Labor Day holiday as the pipeline is expected to be jammed with buyout financings
  • U.S. equity futures advanced and European stocks remained steady ahead of Chair Powell’s speech at the Jackson Hole symposium later today to see if he offers any clues about the timeline for tapering bond purchases. Oil, meanwhile, is headed of the biggest weekly gain in 11 months as focus shifted to the storm that menacing the Gulf of Mexico

(Bloomberg)  S&P Sees Junk Bond Defaults Vanishing Amid Recovery, Easy Money 

  • Missed debt payments by junk-rated borrowers look set to become increasingly rare amid cheap borrowing conditions and economic recovery, according to S&P Global Ratings.
  • The U.S. speculative-grade corporate default rate could fall to as low as 2% by the middle of next year on a trailing 12-month basis, from 3.8% this June, according to a report by S&P. That’s the optimistic scenario, which would be the lowest level of defaults since 2015. It compares to a 2.5% baseline and 5.5% pessimistic forecast for June 2022 by S&P.
  • The junk bond default rate peaked at 6.7% in December — the highest since 2010 — after lockdowns caused by the pandemic. Most borrowers are now able to cover debt payments amid favorable lending and better operating conditions, according to the S&P analysts led by Nick Kraemer, head of ratings performance analytics.
  • In the second quarter, there were only 11 defaults, the fewest since the third quarter of 2018. The number of speculative-grade upgrades outpaced downgrades by about 3-to-1 in 2021, according to the report published Aug. 20.
  • The delta variant could test borrowers, especially in sectors hit hardest by Covid-19, like entertainment and travel. Energy, consumer and service companies — which led the second quarter with the most defaults — are also at risk, though they are expected to broadly recover in 2022.

(The Wall Street Journal)  Western Digital in Advanced Talks to Merge With Kioxia

  • Western Digital is in advanced talks to merge with Japan’s Kioxia Holdings Corp., according to people familiar with the matter.
  • Long-running discussions between the companies have heated up in the past few weeks and they could reach agreement on a deal as early as mid-September, the people said. Western Digital would pay for the deal with stock and the combined company would likely be run by its Chief Executive, David Goeckeler, the people said.
  • There’s no guarantee Western Digital, which had a market value of around $19 billion Wednesday afternoon, will seal an agreement, and Kioxia could still opt for an initial public offering it had been planning or another combination.
  • The Wall Street Journal reported in March that Western Digital and Micron Technology were examining potential deals with Kioxia, which makes NAND flash-memory chips used in smartphones, computer servers and other devices. Micron’s interest has since cooled and Kioxia has been focused on discussions with Western Digital, which already has deep existing ties with the Japanese company.
  • Western Digital, which makes hard disk drives, solid-state drives and NAND chips, has a joint venture with Kioxia for manufacturing and research and development that was set to expire starting in 2027. That agreement appears to have given Western Digital a leg up on Micron, and their existing ties could help make a WD-Kioxia combination more palatable to regulators.
  • Kioxia, formerly part of Toshiba and known as Toshiba Memory, was purchased in 2018 by a group led by private-equity firm Bain Capital.
20 Aug 2021

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.9 billion and year to date flows stand at -$5.7 billion.  New issuance for the week was $7.8 billion and year to date issuance is at $348.9 billion.



(Bloomberg)  High Yield Market Highlights


  • S. junk bonds are headed for a third straight week of losses, the longest such streak in five months, while the cost of borrowing has jumped. Yields have risen to a more than three-month high of 4.19% amid concerns about the spread of the delta variant and its impact on economic growth, and on expectations that the Federal Reserve will soon scale back bond purchases.
  • CCCs, the riskiest junk bonds, have lost 0.19%, and are on track for the seventh consecutive week of losses. Yields soared 31bps Thursday, the biggest one-day jump in more than three months, to a five-month high of 6.63%
  • Borrowers have retreated amid market volatility after selling more than $33b this month, according to data compiled by Bloomberg
  • Yields on the broader junk-bond index rose 8bps to 4.19% Thursday, and are poised to end higher for the six straight week, the longest stretch since July 2015, the Bloomberg-compiled data show
  • Losses amount to 0.12% this week
  • CCC yields have jumped 66bps this month to a five-month high of 6.63%
  • Markets are fragile again Friday with a key measure of high-yield credit risk higher, and U.S. equity futures lower as faltering growth and China’s regulatory curbs compound risks before the Fed’s Jackson Hole symposium next week. Oil is headed for its longest run of daily declines since 2019 on worries about global energy demand


(Bloomberg)  Fed Minutes Show Most Officials See Taper Starting This Year


  • Most Federal Reserve officials agreed last month they could start slowing the pace of bond purchases later this year, judging that enough progress had been made toward their inflation goal, while gains had been made toward their employment objective.
  • “Various participants commented that economic and financial conditions would likely warrant a reduction in coming months,” minutes of the Federal Open Market Committee’s July 27-28 gathering, released Wednesday, said. “Several others indicated, however, that a reduction in the pace of asset purchases was more likely to become appropriate early next year.”
  • The minutes also showed that most participants “judged that it could be appropriate to start reducing the pace of asset purchases this year.”
  • S. central bankers next meet September 21-22. While the record shows that they don’t yet have agreement on the timing or pace of tapering asset purchases, most had reached consensus on keeping the composition of any reduction in Treasury and mortgage-backed securities purchases proportional.
  • Policy choices going forward are also likely to be influenced by new appointees to the Fed Board as the Biden administration moves to fill as many as four positions by early 2022.
  • Fed policy makers have differed publicly in the weeks since the meeting over when the central bank should start tapering, with some, like Minneapolis Fed President Neel Kashkari, wanting to a see a “few more” strong jobs reports and others, such as Boston Fed President Eric Rosengren, saying he’s open to announcing plans for a reduction at the next meeting if employment figures come in well.
  • Fed officials cut their benchmark lending rate to zero in March 2020 and announced they would buy $200 billion of agency mortgage-backed securities and $500 billion of Treasuries to support market functioning. By December 2020, they realigned their guidance saying they would purchase $80 billion a month in Treasuries and $40 billion a month on mortgage securities “until substantial further progress has been made toward its maximum employment and price stability goals.
  • The asset purchases have lowered longer-term interest rates and helped fuel a rise in housing prices and other financial assets, with one-month gains in home price indices breaking records while stock indexes trade around record highs.


06 Aug 2021

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$0.1 billion and year to date flows stand at -$7.1 billion.  New issuance for the week was $16.9 billion and year to date issuance is at $327.1 billion.


 (Bloomberg)  High Yield Market Highlights


  • The rally in the U.S. junk-bond market appears to be losing steam as CCCs, the riskiest segment in high yield, is poised to post a negative return of 0.35% for the week, which would be the biggest such loss in more than nine months. The five straight weeks of losses have been the longest losing streak since November 2018.
  • CCC yields rose 28bps in the last four sessions to 6.25%, and are on track to see the biggest weekly jump in almost three months
  • Junk bond investors pulled cash from retail funds, and the funds have seen cash leak in six of the last 10 sessions
  • The broader junk bond index is also set to post negative returns for the week, with 0.19%, the biggest weekly decline in more than two months
  • That investors were getting wary was evident with BB rated bonds accounting for about 75% of the total bond sales this week
  • Investors, though cautious, were not risk averse as almost $17b of new bonds are set to price this week
  • The index yields rose 14bps week-to-date to close 4.02%, still low and attractive for borrowers


(Bloomberg)  Clarida Sees 2021 Taper Announcement, 2023 Fed Rate Liftoff


    • Federal Reserve Vice Chairman Richard Clarida said the central bank is on course to pull back on the massive support it is providing to the pandemic-damaged economy, starting with an announcement later this year that it is paring bond purchases and moving on to a liftoff in interest rates in 2023.
    • While acknowledging that the rapid spread of the Delta virus posed a downside risk to the economy, Clarida on Wednesday painted an upbeat picture of the outlook in the coming years as growth powers ahead and inflation falls back from its recent elevated levels.
    • The “necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022,” paving the way for a lift-off from near-zero rates in 2023
    • His comments helped to harden wagers in the money markets for an initial rate hike in early 2023, after they wavered earlier on news of a marked slowdown in private sector hiring last month
    • The Fed has said it will keep short-term interest rates pinned near zero until the labor market has reached maximum employment and inflation has risen to 2% and is on track to moderately exceed that level for some time. In economic projections released in June, a preponderance of policy makers penciled in two interest-rate hikes by the end of 2023
    • The economy has forged ahead strongly this year, after swooning in 2020 amid the pandemic. Gross domestic product rose at a 6.5% annualized rate in the second quarter, following a 6.3% gain in the first three months of the year
    • “The monetary and fiscal policies presently in place should continue to support the strong expansion in economic activity that is expected to be realized this year, although, obviously, the rapid spread of the Delta variant among the still considerable fraction of the population that is unvaccinated is clearly a downside risk for the outlook,” Clarida said
    • If growth does stay strong, Clarida said he’d be in favor of the Fed making an announcement later this year that it will begin to scale back its bond purchases
    • The Fed is currently buying $120 billion of assets per month — $80 billion of Treasury securities and $40 billion of mortgage backed debt — and has pledged to keep up that pace “until substantial further progress” has been made toward its goals of maximum employment and 2% inflation.

(Bloomberg)  U.S. Job Growth Exceeds Forecast as Unemployment Rate Falls


    • S. employers added the most jobs in nearly a year and the unemployment rate declined faster than forecast, showing the labor market is making more robust gains toward a full recovery.
    • Payrolls climbed by 943,000 last month after an upwardly revised 938,000 increase in June, a Labor Department report showed Friday. The median estimate in a Bloomberg survey of economists called for a 870,000 gain. The unemployment rate dropped by a half percentage point to 5.4%.
    • The dollar and 10-year Treasury yields advanced while stock futures erased gains as traders bet a strengthening labor market will lead Federal Reserve officials to begin pulling back monetary support, including bond buying.
    • A resurgence in economic activity has sparked a surge in labor demand — particularly in the leisure and hospitality industry — since the beginning of the year. At the same time, payrolls remain 5.7 million short of pre-pandemic levels and many employers have struggled to fill a record number of vacant positions.
    • The figures mark a big step toward the Fed’s goal of “substantial” further progress in the labor market recovery. Fed officials including Chair Jerome Powell and Governor Lael Brainard have indicated the labor-market recovery had some way to go before the central bank could begin tapering asset purchases.
    • Fed Governor Christopher Waller said this week that if the next two monthly employment reports show continued gains, he could back such a move.


12 Jul 2021

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $1.0 billion and year to date flows stand at -$6.0 billion.  New issuance for the week was $0.8 billion and year to date issuance is at $286.8 billion.

 (Bloomberg)  High Yield Market Highlights

  •  The U.S. junk bond primary market finally emerged from its post-holiday malaise with Jaguar Land Rover set to sell $500 million of 8-year bonds as soon as today.
  • The U.S. junk bond market is poised to post gains for the third consecutive week, with returns of 0.16%
  • Barclays revised the spread and returns forecast for high yield as the macro backdrop changed with vaccine rollout, fiscal stimulus and overall growth environment
  • High yield index spreads will end the year at 275-300bps, revised from 250-375. The total returns will be 4%-4.5%, from 3.5%-4.5%, Brad Rogoff wrote in a note on Friday
  • After a relentless rally plunged junk bond yields to all- time lows across ratings, the market stalled yesterday following fluctuating equities and volatile oil prices amid concerns how the clashes inside OPEC+ will play out
  • Yields rose for the second straight session to close at 3.67% after setting a record low of 3.53% earlier in the week. The yields were up 8bps, the biggest one-day jump in seven weeks. Spreads closed at +271bps, also up 8bps
  • The broader index came under pressure after a long rally as equities fell to post a modest loss of 0.11% on Thursday. The market is ending the week with gains of 0.16%
  • CCC yields also rose for the second straight session to close at 5.48%, up 7bps. It hit a new low of 5.15% on July 6. The index posted a loss of 0.19% on Thursday and is expected to end the week with a loss of 0.04%

(The Wall Street Journal)  Borrowing Is Back as Sign-Ups for Auto Loans, Credit Cards Hit Records

  •  Americans are borrowing again, in some cases at levels not seen in more than a decade.
  • Consumer demand for auto loans and leases, general-purpose credit cards and personal loans was up 39% in April compared with the same period last year, according to credit-reporting firm Equifax It was also up 11% compared with April 2019, according to Equifax, which measured how often lenders checked consumers’ credit reports to make loan decisions.
  • Lenders are meeting the moment. Equifax said lenders extended a record number of auto loans and leases in March, the latest month for which data are available. They also bumped up credit-card originations, issuing more general-purpose credit cards than any other March on record. Equifax’s data goes back to 2010.
  • With vaccinations readily available in the U.S. and the economy reopening, many Americans are splurgingon cars, vacations and eating out. Higher prices, especially for cars and trucks, have also stoked loan demand.
  • “There’s a significant increase in consumer-credit demand and a growing appetite to use credit on things like those vacations that were postponed for 18 months,” said Tom Aliff, senior vice president of analytics consulting at Equifax.

(Bloomberg)  Oil Prices in Flux While OPEC+ Remains Deadlocked on Supply

  • Oil prices continued to swirl as traders tried to fathom how the clash inside the OPEC+ alliance will play out in global markets.
  • Early in the week, U.S. crude soared to a six-year high near $77 a barrel on fears that OPEC’s failure to agree a production increase would leave markets desperately tight. But the gains soon fizzled on concern that the dispute between Saudi Arabia and the United Arab Emirates could splinter the entire alliance and undo its production cuts agreement.
  • Futures advanced 0.9% on Friday, gaining in tandem with other commodities. Nonetheless, crude is down 2.1% for the week and the main focus for traders in coming days will be whether the Organization of Petroleum Exporting Countries and its partners can repairs its split.
  • Before talks broke down on Monday, Saudi Arabia proposed that the coalition gradually revive the 5.8 million barrels of daily capacity it still has off-line in monthly installments of 400,000 barrels through to the end of next year. But the UAE blocked an agreement, saying it will only support an extension of the pact if there are revisions to its own quota, which the country contends is outdated.
  • The existing OPEC+ agreement states that output remains steady next month. That could cause world markets to tighten sharply, with forecasters such as Goldman Sachs Group Inc. warning the shortfall will amount to several million barrels a day.
  • Yet the longer the dispute goes unresolved, traders are reckoning with another possible outcome: that the UAE follows through on veiled threats to quit OPEC, which could cause the entire alliance to dissolve into a production free-for-all reminiscent of last year’s Saudi-Russia price war.
  • “The OPEC+ impasse could turn sour,” analysts at market intelligence firm Kpler Ltd. said in a report. “While the prospect of a non-agreement sounds like a bullish scenario, the less likely bearish scenario where OPEC+ tumbles and goes back to a free-for-all remains on the table.”
02 Jul 2021

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.7 billion and year to date flows stand at -$7.1 billion.  New issuance for the week was $7.2 billion and year to date issuance is at $286.0 billion.



(Bloomberg)  High Yield Market Highlights


  • The U.S. junk-bond market’s riskiest slice of debt saw yields plunge to the lowest level on record Thursday as a fierce rally continued to roar full steam ahead across the high-yield ratings spectrum. CCC yields fell to 5.60% while spreads tightened to +456bps.
  • Broader index yields dropped to 3.72% to reach a new low for the fifth time in about five months, while spreads rallied to +265bps, the lowest since June 21, 2007
  • Single B yields closed at 4.04%, also a record, while spreads were +292bps, the tightest in about 14 years
  • The primary market is expected to be quiet Friday as borrowers wait to strike until after the Fourth of July weekend
  • Retail investor confidence was evident in fund-flow data as there was an inflow of $700mm for the week, which was the biggest influx since April
  • S. equity futures have climbed ahead of key jobs data while oil was steady after infighting within OPEC+ delayed a decision on raising output levels


18 Jun 2021

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$0.9 billion and year to date flows stand at -$8.9 billion.  New issuance for the week was $13.5 billion and year to date issuance is at $274.2 billion. 

(Bloomberg)  High Yield Market Highlights 

  • U.S. junk bonds remained relatively steady Thursday amid a retreat in the reflation trade that has dominated markets for the majority of this year. The broader high-yield index is poised to see a modest weekly loss of 0.03% — its first decline in four weeks — as investors also weigh the Federal Reserve’s signals that it’s ready to withdraw stimulus.
  • The index posted a small loss of 0.07% for the second consecutive session while yields rose 5bps to close at 3.94%
  • The primary market was quiet Thursday amid the market reordering, which has seen commodities dip for five-straight sessions and Brent crude slip from this week’s 2018 high
  • Borrowers are expected to remain in wait-and-see mode and issuance is likely to be subdued ahead of the weekend.
  • Equity futures are mixed this morning Oil, meanwhile, also extended its decline, with prices falling below $71 a barrel as fears of earlier than expected rate hike derailed bets on commodities

(Wall Street Journal)  Fed Pencils In Earlier Interest-Rate Increase

  • Federal Reserve officials signaled they expect to raise interest rates by late 2023, sooner than they anticipated in March, as the economy recovers rapidly from the effects of the pandemic and inflation heats up.
  • Their median projection showed they anticipate lifting their benchmark rate to 0.6% from near zero by the end of 2023. In March they had expected to hold it steady through that year.
  • Fed officials also discussed an eventual reduction, or tapering, of the central bank’s bond-buying program, Chairman Jerome Powell said at a press conference after the central bank’s two-day policy meeting. The timing of such a move remains uncertain, he added.
  • Prompting the policy shift is a much stronger economic rebound and hotter inflation than the Fed anticipated just a few months ago.
  • “Progress on vaccinations has reduced the spread of Covid-19 in the United States,” the Fed said in a statement following the meeting. “Amid this progress and strong policy support, indicators of economic activity and employment have strengthened.”
  • In updated projections released Wednesday, 13 of 18 officials indicated they expect to lift short-term rates by the end of 2023, up from seven who expected that outcome in March. In March, most of them anticipated holding rates steady through 2023.
  • The Fed has its benchmark federal-funds rate steady since March 2020, when the effects of the pandemic caused the sharpest economic contraction in generations. The central bank also has been purchasing at least $120 billion a month of Treasury and mortgage bonds since June 2020 to hold down longer-term borrowing costs, providing further support to the recovery.
  • The Fed reiterated that it expects to continue bond purchases until “substantial further progress” has been made in the recovery, counting from December 2020.
  • Fed officials want the economy to get closer to their goals of “maximum employment” and sustained 2% inflation before reducing the bond purchases. They have said they want to fully achieve those objectives before they raise interest rates.
  • “Honestly the main message I would take away from the [forecasts] is that participants—many participants—are more comfortable that the economic conditions in the committee’s forward guidance could be met somewhat sooner than anticipated,” Mr. Powell said. “That would be a welcome development.”
  • He said meeting the standard for reducing bond purchases remains “a ways away.” But he added that the economy is making progress toward the Fed’s goals and that policy makers will be assessing the appropriate time to begin scaling back the purchases at coming meetings.
  • “You can think about this meeting that we had as the ‘talking about talking about tapering,’ if you like,” Mr. Powell said.
28 May 2021

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 -$6.2 billion.  New issuance for the week was $11.9 billion and year to date issuance is at $247.8 billion. 

(Bloomberg)  High Yield Market Highlights 

  • U.S. junk bonds are set to post gains for the eighth consecutive month after nearly $47 billion of sales have already made for the busiest May ever for new issuance.
  • CCCs, the riskiest bracket in high-yield, are on track to record gains for the 14th straight month — the longest positive stretch since a 16-month streak ended September 1992, according to data compiled by Bloomberg
  • The CCC tier is also poised to end May as the best-performing segment of the market for the sixth straight month with returns of 0.6%
  • Barclays strategist Brad Rogoff wrote in note on Friday that spreads are close to recent tights and are well supported in the near term by the current technical and fundamental backdrop
  • He cautioned, however, that in the longer term, the eventual withdrawal of extraordinary monetary and fiscal stimulus will be a potential risk for valuations
  • Despite remaining on a pursuit for yield, investors still pulled money from U.S. high yield funds for the week. This was the fourth straight week of outflows from junk- bond retail funds
  • The broader index posted gains again on Thursday and is expected to notch returns of 0.22% for the month, the eighth straight month of gains
  • Yields closed flat at 4.11%, while spreads were at +302bps 

(Bloomberg)  U.S. Home Prices Surge Most Since 2005, Fueled by Low Rates

  • U.S. home prices surged the most since the end of 2005 as a shortage of properties to buy fueled bidding wars.
  • Nationally, the S&P CoreLogic Case-Shiller index of property values climbed 13.2% in March from a year earlier, the biggest gain since December 2005. That came after a jump of 12% in February.
  • Home prices in 20 U.S. cities gained 13.3%, meanwhile, beating the median estimate in a Bloomberg survey of economists. It was the biggest jump since December 2013.
  • The real estate market has been surging for the past year as Americans seek properties in the suburbs, with low mortgage rates driving the rally. A dearth of available properties has also helped push up prices.
  • “These data are consistent with the hypothesis that Covid-19 has encouraged potential buyers to move from urban apartments to suburban homes,” said Craig J. Lazzara, global head of index investment strategy at S&P Dow Jones Indices. “This demand may represent buyers who accelerated purchases that would have happened anyway over the next several years.”
  • Phoenix (20%), San Diego (19.1%) and Seattle (18.3%) posted the biggest increases among the 20 cities tracked by Case-Shiller.

30 Apr 2021

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$0.7 billion and year to date flows stand at -$3.7 billion.  New issuance for the week was $7.2 billion and year to date issuance is at $194.7 billion. 

(Bloomberg)  High Yield Market Highlights 

  • April is set to become the fifth-busiest month for junk-bond issuance by the end of Friday as about $1.6 billion is slated to price. A total of $47.03 billion has been sold so far this month, trailing September 2020’s $47.065 billion for a spot in the top five, according to data compiled by Bloomberg.
  • This past March was the heaviest ever with almost $60b and January was the fourth-busiest with $52b
  • Three of the five most active months on record have occurred this year, contributing to the busiest quarter of all-time
  • Junk bonds are set post the biggest monthly gains since December, with returns of 1.06% month-to-date. This would be the seventh consecutive month of gains and the longest winning streak in more than a year
  • The riskiest high-yield bracket — CCCs — are on track to post the best monthly returns in the market with 1.2% gains month-to- date. This is the 13th straight month of gains and the longest rallying stretch since September 1992
  • The broader junk bond index yield closed at 4.03% and spreads were at +293bps, just 3bps away from the 14-year low of +290bps set on April 7
  • CCC yields were flat at 6.13% and spreads closed at +504bps, just 11bps off the 14-year low of +493bps

(Bloomberg)  Biden Musters Early Congress Momentum to Pass Tax-Spend Vision 

  • President Joe Biden is likely to see some version of his $4 trillion economic plan passed in Congress by September or October if he can keep various Democratic factions from splintering the party and continue fending off Republican attempts to paint it as radical.
  • Biden holds some advantages in pushing for what would be a massive expansion of the government, not the least of which is that the trillions of dollars spent to counter the economic dislocation of the Covid-19 pandemic reset expectations in Congress and among voters about fiscal policy.
  • Once Biden’s plan is put into legislative text, Democrats can use Senate rules to bypass Republican opposition to most of it.
  • But the president’s proposals won’t emerge from Congress unscathed, and it’s not yet clear which parts will be left on the cutting room floor or what might be added. There is also the question of whether Congress, with Democrats holding only the narrowest margin of control, sticks to Biden’s two-part vision of a roughly $2.3 trillion tranche focused on infrastructure and manufacturing and $1.8 trillion package focused on education and child care.
  • The first test will be infrastructure. There is a strong possibility that Congress is able to come together on a smaller, bipartisan measure focused on roads, bridges, transit, water and broadband internet in the coming weeks.
  • Biden ally Senator Chris Coons of Delaware said trying to strike a deal with Republicans on some portion of Biden’s plan is necessary because there are Democrats who will balk at trying to pass the rest of it on a partisan basis as was done with the $1.9 trillion Covid-relief bill earlier this year.
  • Negotiating with Republicans is crucial “both for the benefits of bipartisanship on its own and for internal and political reasons,” Coons said.
  • Negotiations won’t end even if Democrats go it alone on the bigger part of Biden’s plan.
  • The Senate Democratic caucus spans the gamut from self-described democratic socialist Bernie Sanders, who is already pushing to add an expansion of Medicare to the mix, to Manchin, who is already calling the level of spending “uncomfortable.” Manchin has expressed concern that the tax increases on corporations Biden proposes to pay for his plans could hurt the economy.
  • In the House, Democrats currently hold only a six vote majority. It will be a challenge to manage the competing interests of the Congressional Progressive Caucus, which is pushing for trillions more in spending to be added to the Biden plans, and moderates who worry about keeping their seats in the 2022 midterms where the GOP will have a redistricting advantage.
  • In addition, there is a faction of lawmakers from high-tax states threatening to withhold support on any tax-related legislation unless it also repeals the $10,000 cap on deductions for state and local taxes.
  • The moderate Blue Dog Coalition warned in a Wednesday statement that Democrats must be realistic in crafting the bills and that “messaging bills that cannot pass both chambers do not put people back to work, do not help open small businesses, and do not lower the costs of health care.”
  • McConnell on Thursday said Biden was dividing the country and warned that changes made without GOP support in Congress could easily be reversed whenever Republicans regain control of Washington.

(Bloomberg)  Fed Strengthens View of Economy While Keeping Rates Near Zero

  • Federal Reserve officials strengthened their assessment of the economy on Wednesday and signaled that risks have diminished while leaving their policy interest rate near zero and maintaining a $120 billion monthly pace of asset purchases.
  • “Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,” the Federal Open Market Committee said in a statement following the conclusion of its two-day policy meeting. “The sectors most adversely affected by the pandemic remain weak but have shown improvement. Inflation has risen, largely reflecting transitory factors.”
  • The Fed said that “risks to the economic outlook remain,” softening previous language that referred to the pandemic posing “considerable risks.”
  • Powell and his colleagues met amid growing optimism for the U.S. recovery, helped by widening vaccinations and aggressive monetary and fiscal support.
  • At the same time, a rise in coronavirus cases in some regions around the world casts a shadow over global growth prospects, giving policy makers reason to remain patient on withdrawing support. Fed officials have also been largely dismissive of inflation risks for the time being, saying a jump in consumer prices last month was distorted by a pandemic-related decline in prices in March 2020.
  • U.S. central bankers repeated they would not change the pace of bond buying until “substantial further progress” is made on their employment and inflation goals.
  • Forecasters surveyed by Bloomberg expect the U.S. economy this year to expand at the fastest pace in more than three decades, with the Fed expected to announce in late 2021 that it will start slowing the pace of asset purchases.
19 Mar 2021

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$0.8 billion and year to date flows stand at -$5.6 billion.  New issuance for the week was $15.4 billion and year to date issuance is at $129.7 billion.

 (Bloomberg)  High Yield Market Highlights 

  • Year-to-date U.S. junk-bond returns turned negative for the first time since January, and are set to post a weekly loss after Thursday’s 0.29% decline. It was the biggest one-day drop in three weeks, according to data compiled by Bloomberg. This would mark the fifth consecutive week of losses and the longest stretch of weekly declines since August 2013.
  • Yields jumped 13bps to close at a 15-week high of 4.57%, the most in three weeks. Spreads were steady, widening by 5bps to +337 as the 5Y UST rose 6bps to 0.86% on Thursday
  • While yields rose, spreads remained intact and “avoided volatility” as the demand backdrop remained supportive despite concerns about retail outflows, Barclays strategist Brad Rogoff wrote on Friday
  • “Strong economic growth should allow higher-beta credit to hold its recent outperformance”
  • As returns turned negative and investors showed some weariness, there was no serious risk aversion as retailer Neiman Marcus is set to price a $1b offering of five-year notes, rated Caa2/CCC+, as soon as today
  • Proceeds of the deal will be used to repay debt it incurred to exit bankruptcy in September
  • Junk bonds have come under pressure after pricing more than $40b this month, just about $2b short of making this the busiest March on record. The most active March came in 2017, with $42.165b sold. This year’s first quarter has seen almost $130b of supply, the second-busiest quarter ever
  • BB yields rose to a four-month high of 3.72% while spreads held firm widening just 3bps when 5Y UST rose 6bps
  • CCCs, the riskiest tier of junk bonds, also posted a loss of 0.2% on Thursday. Yields rose 19bps to 6.76%
  • Stock futures rebounded after dropping overnight as the Nasdaq climbed this morning. Oil tried to recover this morning but was heading for the biggest weekly loss since October

(Bloomberg)  Powell Faces Tough Campaign to Convince Traders of Fed’s Resolve

  • The Federal Reserve succeeded in pushing back against market expectations for a rate hike in the next two years, but only partially.
  • The central bank envisages keeping rates near zero to the end of 2023 despite a significantly brighter assessment of growth and higher inflation over the near term. After the release, traders trimmed some of the more-aggressive positioning they’ve been building for a “lift-off” by earlier in 2023.
  • But a 25 basis-point hike by the first quarter that year is still reflected in Eurodollar futures, which are priced off Libor and are a decent proxy for future borrowing costs. So traders haven’t exactly brought their views on the timing that much closer to the central bank’s guidance.
  • “The market will need to be reminded again and again of the Fed’s commitment” to support the recovery, said Anne Mathias, global rates and currencies strategist at Vanguard Group Inc. “If higher yields don’t slow the economy down, don’t upset the stock market, don’t upset risk-taking, then the Fed doesn’t need to push back hard against them,” she said in an interview.
  • Current rates-market pricing reflects a lingering conviction that the pace of the recovery will spur the Fed to action, earlier than it anticipates, though Chair Jerome Powell reiterated Wednesday that the Fed needs to see “substantial further progress” on its employment and inflation goals before thinking about a hike.
  • That statement helped short-end rates fall. Seven-year yields remained elevated, however, which suggests positioning for higher interest rates may be building further out the curve. A later rate hike could force the central bank to move faster to tame inflation.
  • Market gauges of inflation expectations imply some faith in the central bank’s ability to keep it under control. The five-year breakeven rate, which is derived from the difference between yields on Treasuries and their inflation-protected counterparts, is around the highest since 2008, at 2.63%. That compares with a lower 10-year breakeven rate showing price pressures returning to the Fed’s target over the decade.
  • That chimes with the Fed’s guidance, in Mathias’s view.
  • “We’re going to see some interim inflation pressure from pent-up spending,” she said. “Net-net, though, the overall secular forces that have kept inflation at bay have not changed.”