Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $2.1 billion and year to date flows stand at -$2.2 billion. New issuance for the week was $12.7 billion and year to date issuance is at $417.2 billion.
(Bloomberg) High Yield Market Highlights
- The riskiest part of the junk bond market is poised to post gains for the second consecutive week. Should the current trend hold, CCCs will close the week as the best performing asset in high yield amid rate volatility and inflation anxiety.
- The broader junk bond index may also end the week with modest gains for the second straight week, with 0.04% largely propelled by CCCs.
- While risk assets managed to tune out macro concerns, “continued rate volatility could be a potential source of risk for valuations and at least create opportunities within credit”, Barclays strategist Brad Rogoff wrote on Friday.
- U.S. junk bond yields have come under pressure and have jumped 34bps since August to close at 4.18%; CCC yields rose 38bps to close at 6.53% as inflation fears took on momentum with the 5-year U.S. Treasury yields rising about 46bps in that period to close at a 20-month high of 1.243%.
- Investors assessed rising yields and falling prices, re-entering the market to pour cash into retail funds.
- U.S. high yield funds report an inflow of $2.1b this week, the biggest since April.
- The primary market remained healthy with $12.7b of issuance.
(Bloomberg) Fed’s Quarles Urges November Taper and Warns of Inflation Risks
- Federal Reserve Governor Randal Quarles said he favors an initial move to slow monetary stimulus next month and is concerned by a broadening of inflationary pressures that could require a policy response.
- “I would support a decision at our November meeting to start reducing these purchases,” he said in remarks prepared for a speech Wednesday to a Milken Institute conference in Los Angeles, referring to the central bank’s bond-buying program, which is currently running at $120 billion a month.
- Fed officials are getting ready to begin winding down the bond-buying program they put in place last year in the early days of the pandemic. They broadly agreed to start the process in either mid-November or mid-December, according to minutes of their last meeting on Sept. 21-22.
- Quarles said he agreed that current high inflation is “transitory,” and that the central bank is not “behind the curve” with its monetary policy. While price moves have been prompted by supply disruptions during the Covid-19 pandemic, the surges have lasted longer than expected and there has been a broadening of the number of items that have seen price surges, he said.
- “There is evidence in the past couple of months that a broader range of prices are beginning to increase at moderate rates, and I am closely watching those developments,” he said.
- Quarles’ prepared remarks didn’t give an explicit forecast for the timing of interest-rate liftoff. Projections published at the conclusion of the Fed’s September meeting showed officials were evenly split on whether increases in its benchmark interest rate, which is currently near zero, would be necessary next year.
- During a question and answer session, he said that “if we are still seeing 4% inflation or in that area next spring, then I think we might have to reassess the speed with which we would be thinking about raising interest rates.”
- Quarles’ position as Fed vice chairman of supervision expired earlier this month and the Fed Board in Washington decided not to have any single governor take that position while awaiting a fresh nomination by President Joe Biden.