Insights

High Yield Weekly

Timely updates on the news that is most important to the issuers in our portfolios.

High Yield Quarterly

Our Portfolio Management team’s perspective on the High Yield strategy for the prior quarter.

Investment Grade Weekly

Timely updates on the news that is most important to the issuers in our portfolios.

Investment Grade Quarterly

Our Portfolio Management team’s perspective on the Investment Grade strategy for the prior quarter.

January 2019

Key Observations

For the month of January 2019, the yield on the 5-year US Treasury Note ended at 2.44%, 7 basis points lower from the previous month. The Bloomberg Barclays US High Yield Index tightened by 103 basis points to 4.23% over Treasuries. The BB Rated Corporate Credit Spread decreased by 90 basis points to 2.64%. The B Rated Corporate Credit Spreads tightened by 113 basis points to 4.18%. The CCC Rated Corporate Credit Spread decreased by 146 basis points to 8.43%.

December 2018

Key Observations

For the month of December 2018, the yield on the 5-year US Treasury Note ended at 2.51%, 30 basis points lower from the previous month. The Bloomberg Barclays US High Yield Index widened by 108 basis points to 5.26% over Treasuries. The BB Rated Corporate Credit Spread increased by 79 basis points to 3.54%. The B Rated Corporate Credit Spreads widened by 115 basis points to 5.31%. The CCC Rated Corporate Credit Spread increased by 180 basis points to 9.89%.

November 2018

Key Observations

For the month of November 2018, the yield on the 10-year US Treasury Note ended at 2.99%, 15 basis points lower from the previous month. The Bloomberg Barclays US Corporate Index widened by 19 basis points to 1.37% over Treasuries. The A Rated Corporate Credit Spread increased by 13 basis points to 1.09%. The BBB Rated Corporate Credit Spreads widened by 25 basis points to 1.77%.

October 2018

Key Observations

For the month of October 2018, the yield on the 10-year US Treasury Note ended at 3.14%, 8 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index widened by 12 basis points to 1.18% over Treasuries. The A Rated Corporate Credit Spread increased by 11 basis points to 0.96%. The BBB Rated Corporate Credit Spreads widened by 16 basis points to 1.52%.

September 2018

Key Observations

For the month of September 2018, the yield on the 5-year US Treasury Note ended at 2.95%, 21 basis points higher from the previous month. The Bloomberg Barclays US High Yield Index tightened by 22 basis points to 3.16% over Treasuries. The BB Rated Corporate Credit Spread decreased by 15 basis points to 2.06%. The B Rated Corporate Credit Spreads tightened by 23 basis points to 3.12%. The CCC Rated Corporate Credit Spread decreased by 27 basis points to 5.84%.

August 2018

Key Observations

For the month of August 2018, the yield on the 10-year US Treasury Note ended at 2.86%, 10 basis points lower from the previous month. The Bloomberg Barclays US Corporate Index widened by 5 basis points to 1.14% over Treasuries. The A Rated Corporate Credit Spread increased by 3 basis points to 0.92%. The BBB Rated Corporate Credit Spreads widened by 6 basis points to 1.47%.

July 2018

Key Observations

For the month of July 2018, the yield on the 10-year US Treasury Note ended at 2.96%, 10 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index tightened by 14 basis points to 1.09% over Treasuries. The A Rated Corporate Credit Spread decreased by 12 basis points to .89%. The BBB Rated Corporate Credit Spreads tightened by 16 basis points to 1.41%.

June 2018

Key Observations

For the month of June 2018, the yield on the 10-year US Treasury Note ended at 2.86%, remaining the same from the previous month. The Bloomberg Barclays US Corporate Index widened by 8 basis points to 1.23% over Treasuries. The A Rated Corporate Credit Spread increased by 7 basis points to 1.01%. The BBB Rated Corporate Credit Spreads widened by 8 basis points to 1.57%.

May 2018

Key Observations

For the month of May 2018, the yield on the 10-year US Treasury Note ended at 2.86%, 9 basis points lower from the previous month. The Bloomberg Barclays US Corporate Index widened by 7 basis point to 1.15% over Treasuries. The A Rated Corporate Credit Spread increased by 6 basis points to 0.94%. The BBB Rated Corporate Credit Spread widened by 10 basis point to 1.49%.

April 2018

Key Observations

For the month of April 2018, the yield on the 10-year US Treasury Note ended at 2.95%, 21 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index tightened by 1 basis point to 1.08% over Treasuries. The A Rated Corporate Credit Spread decreased by 2 basis points to 0.88%. The BBB Rated Corporate Credit Spreads widened by 1 basis point to 1.39%.

March 2018

Key Observations

For the month of March 2018, the yield on the 10-year US Treasury ended at 2.74%, 12 basis points lower from the previous month. The Bloomberg Barclays US Corporate Index widened by 13 basis points to 1.09% over Treasuries. The A Rated Corporate Credit Spread increased by 12 basis points to 0.90%. The BBB Rated Corporate Credit Spreads widened by 15 basis points to 1.38%.

February 2018

Key Observations

For the month of February 2018, the yield on the 10-year US Treasury ended at 2.86%, 15 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index widened by 10 basis points to 0.96% over Treasuries. The A Rated Corporate Credit Spread increased by 9 basis points to 0.78%. The BBB Rated Corporate Credit Spreads widened by 11 basis points to 1.23%.

January 2018

Key Observations

For the month of January 2018, the yield on the 10-year US Treasury ended at 2.71%, 30 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index tightened by 7 basis points to 0.86% over Treasuries. The A Rated Corporate Credit Spread decreased by 4 basis points to 0.69%. The BBB Rated Corporate Credit Spreads tightened by 12 basis points to 1.12%.

Yield Spread Analysis

A monthly summary of changes in Corporate Bond Yields and Spreads

Q4- 2018

“We’re in a place where we can be patient and flexible and wait and see what does evolve” Federal Reserve chairman, Powell 1/11/19 regarding future interest rate increases

These comments made by the Fed chairman exemplify the changed position of the Fed. Given the moderating growth of the global economy and some U.S. economic measures, the Fed is signaling that they can now be patient about further increases in interest rates.

Q3 – 2018

Interest rates moved higher in the third quarter, and fixed income investors with long- term investment horizons might say, “It’s about time.” Why? (1) Bond interest delivers an important, ongoing income stream, (2) is important for wealth preservation, and (3) can be a significant element of fixed income returns.

Q2 – 2018

The economy picked up momentum over the second quarter as the impact of the Trump tax cuts and regulatory relief took effect.

Q1 – 2018

A changing sentiment is enveloping the bond markets, spooking investors. The 10- year Treasury began 2018 at 2.40%, below its 2017 March high of 2.63% (source: Bloomberg). This year its yield moved as high as 2.95% on 2/21/18, but finished the quarter at 2.74%.

Market Review & Outlook

Our quarterly newsletter, which features discussion of macroeconomic trends, market dynamics, and their impact on Corporate Bonds.

$25 Par Bonds – A Questionable Value Proposition

There are many reasons that an investor may employ a professional bond manager. One of the most important considerations when working with a professional bond manager is its access to institutional trading desks and its ability to purchase bonds at a fair or attractive price. Many investors are aware that equities are exchange traded, which allows investors to easily buy or sell equity securities with relatively low transaction costs.

Drawdowns 2018

With markets focused on the actions of the Federal Reserve, many investors have chosen income producing investments that are less sensitive to interest rate movements. Though these asset classes are less correlated with the actions of the Fed, they bring a risk profile all their own in periods of market stress.

Dalbar Study 2018

Since 1994, DALBAR1 has published their annual Quantitative Analysis of Investor Behavior report, which has consistently shown that average investors have under-performed the market. In their 2018 study, DALBAR comes to the same conclusion as prior years: investors tend to have a short-term focus, and they attempt to time the markets resulting in under-performance relative to their respective benchmarks.

Bigger Isn’t Always Better in Bonds

It may no longer be true that “bigger is better” when picking a corporate bond manager. After the financial crisis, reforms to cut global risks have changed some basic features of the corporate bond market. Bond market volumes are healthy and exceed levels of 2007, but the average bond transaction is 40% smaller today.

HIGH YIELD – AN ASSET ALLOCATION PERSPECTIVE

High Yield is often a misunderstood asset class and tends to receive a nominal portion of investors’ asset allocation. The following attempts to de-bunk some of the common myths associated with investing in high yield bonds and to provide a constructive framework regarding the benefits of high yield.

All Bank Loans are not Created Equal

As a Corporate Bond Manager we often receive inquiries regarding our thoughts on the Bank Loan Market especially in the current interest rate environment where the 10-year US Treasury Bond yield has increased 1% over the last 9 months. We believe that the asset class may warrant a place in an investor’s asset allocation and complement other credit sectors such as Investment Grade Corporates and High Yield but we suggest exercising caution, as all loans are not created equal.

Bond Laddering vs. Single Maturity Investing

It is common for individual fixed income investors to construct portfolios utilizing a “ladder” strategy, purchasing bonds over a specific time frame, 5 or 10 years for example, and in equal installments – an issue coming due each calendar year. This approach is fairly straight forward; however, we find that investors pursuing this type of strategy give up potential return.

Whitepapers

Selected topics that may impact our client community are selected for deeper research and posted here.

High Yield Weekly

Timely updates on the news that is most important to the issuers in our portfolios.

High Yield Quarterly

Our Portfolio Management team’s perspective on the High Yield strategy for the prior quarter.

Investment Grade Weekly

Timely updates on the news that is most important to the issuers in our portfolios.

Investment Grade Quarterly

Our Portfolio Management team’s perspective on the Investment Grade strategy for the prior quarter.

December 2018

Key Observations

For the month of December 2018, the yield on the 5-year US Treasury Note ended at 2.51%, 30 basis points lower from the previous month. The Bloomberg Barclays US High Yield Index widened by 108 basis points to 5.26% over Treasuries. The BB Rated Corporate Credit Spread increased by 79 basis points to 3.54%. The B Rated Corporate Credit Spreads widened by 115 basis points to 5.31%. The CCC Rated Corporate Credit Spread increased by 180 basis points to 9.89%.

November 2018

Key Observations

For the month of November 2018, the yield on the 10-year US Treasury Note ended at 2.99%, 15 basis points lower from the previous month. The Bloomberg Barclays US Corporate Index widened by 19 basis points to 1.37% over Treasuries. The A Rated Corporate Credit Spread increased by 13 basis points to 1.09%. The BBB Rated Corporate Credit Spreads widened by 25 basis points to 1.77%.

October 2018

Key Observations

For the month of October 2018, the yield on the 10-year US Treasury Note ended at 3.14%, 8 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index widened by 12 basis points to 1.18% over Treasuries. The A Rated Corporate Credit Spread increased by 11 basis points to 0.96%. The BBB Rated Corporate Credit Spreads widened by 16 basis points to 1.52%.

September 2018

Key Observations

For the month of September 2018, the yield on the 5-year US Treasury Note ended at 2.95%, 21 basis points higher from the previous month. The Bloomberg Barclays US High Yield Index tightened by 22 basis points to 3.16% over Treasuries. The BB Rated Corporate Credit Spread decreased by 15 basis points to 2.06%. The B Rated Corporate Credit Spreads tightened by 23 basis points to 3.12%. The CCC Rated Corporate Credit Spread decreased by 27 basis points to 5.84%.

August 2018

Key Observations

For the month of August 2018, the yield on the 10-year US Treasury Note ended at 2.86%, 10 basis points lower from the previous month. The Bloomberg Barclays US Corporate Index widened by 5 basis points to 1.14% over Treasuries. The A Rated Corporate Credit Spread increased by 3 basis points to 0.92%. The BBB Rated Corporate Credit Spreads widened by 6 basis points to 1.47%.

July 2018

Key Observations

For the month of July 2018, the yield on the 10-year US Treasury Note ended at 2.96%, 10 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index tightened by 14 basis points to 1.09% over Treasuries. The A Rated Corporate Credit Spread decreased by 12 basis points to .89%. The BBB Rated Corporate Credit Spreads tightened by 16 basis points to 1.41%.

June 2018

Key Observations

For the month of June 2018, the yield on the 10-year US Treasury Note ended at 2.86%, remaining the same from the previous month. The Bloomberg Barclays US Corporate Index widened by 8 basis points to 1.23% over Treasuries. The A Rated Corporate Credit Spread increased by 7 basis points to 1.01%. The BBB Rated Corporate Credit Spreads widened by 8 basis points to 1.57%.

May 2018

Key Observations

For the month of May 2018, the yield on the 10-year US Treasury Note ended at 2.86%, 9 basis points lower from the previous month. The Bloomberg Barclays US Corporate Index widened by 7 basis point to 1.15% over Treasuries. The A Rated Corporate Credit Spread increased by 6 basis points to 0.94%. The BBB Rated Corporate Credit Spread widened by 10 basis point to 1.49%.

April 2018

Key Observations

For the month of April 2018, the yield on the 10-year US Treasury Note ended at 2.95%, 21 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index tightened by 1 basis point to 1.08% over Treasuries. The A Rated Corporate Credit Spread decreased by 2 basis points to 0.88%. The BBB Rated Corporate Credit Spreads widened by 1 basis point to 1.39%.

March 2018

Key Observations

For the month of March 2018, the yield on the 10-year US Treasury ended at 2.74%, 12 basis points lower from the previous month. The Bloomberg Barclays US Corporate Index widened by 13 basis points to 1.09% over Treasuries. The A Rated Corporate Credit Spread increased by 12 basis points to 0.90%. The BBB Rated Corporate Credit Spreads widened by 15 basis points to 1.38%.

February 2018

Key Observations

For the month of February 2018, the yield on the 10-year US Treasury ended at 2.86%, 15 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index widened by 10 basis points to 0.96% over Treasuries. The A Rated Corporate Credit Spread increased by 9 basis points to 0.78%. The BBB Rated Corporate Credit Spreads widened by 11 basis points to 1.23%.

January 2018

Key Observations

For the month of January 2018, the yield on the 10-year US Treasury ended at 2.71%, 30 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index tightened by 7 basis points to 0.86% over Treasuries. The A Rated Corporate Credit Spread decreased by 4 basis points to 0.69%. The BBB Rated Corporate Credit Spreads tightened by 12 basis points to 1.12%.

Yield Spread Analysis

A monthly summary of changes in Corporate Bond Yields and Spreads

Q4- 2018

“We’re in a place where we can be patient and flexible and wait and see what does evolve” Federal Reserve chairman, Powell 1/11/19 regarding future interest rate increases

These comments made by the Fed chairman exemplify the changed position of the Fed. Given the moderating growth of the global economy and some U.S. economic measures, the Fed is signaling that they can now be patient about further increases in interest rates.

Q3 – 2018

Interest rates moved higher in the third quarter, and fixed income investors with long- term investment horizons might say, “It’s about time.” Why? (1) Bond interest delivers an important, ongoing income stream, (2) is important for wealth preservation, and (3) can be a significant element of fixed income returns.

Q2 – 2018

The economy picked up momentum over the second quarter as the impact of the Trump tax cuts and regulatory relief took effect.

Q1 – 2018

A changing sentiment is enveloping the bond markets, spooking investors. The 10- year Treasury began 2018 at 2.40%, below its 2017 March high of 2.63% (source: Bloomberg). This year its yield moved as high as 2.95% on 2/21/18, but finished the quarter at 2.74%.

Market Review & Outlook

Our quarterly newsletter, which features discussion of macroeconomic trends, market dynamics, and their impact on Corporate Bonds.

$25 Par Bonds – A Questionable Value Proposition

There are many reasons that an investor may employ a professional bond manager. One of the most important considerations when working with a professional bond manager is its access to institutional trading desks and its ability to purchase bonds at a fair or attractive price. Many investors are aware that equities are exchange traded, which allows investors to easily buy or sell equity securities with relatively low transaction costs.

Drawdowns 2018

With markets focused on the actions of the Federal Reserve, many investors have chosen income producing investments that are less sensitive to interest rate movements. Though these asset classes are less correlated with the actions of the Fed, they bring a risk profile all their own in periods of market stress.

Dalbar Study 2018

Since 1994, DALBAR1 has published their annual Quantitative Analysis of Investor Behavior report, which has consistently shown that average investors have under-performed the market. In their 2018 study, DALBAR comes to the same conclusion as prior years: investors tend to have a short-term focus, and they attempt to time the markets resulting in under-performance relative to their respective benchmarks.

Bigger Isn’t Always Better in Bonds

It may no longer be true that “bigger is better” when picking a corporate bond manager. After the financial crisis, reforms to cut global risks have changed some basic features of the corporate bond market. Bond market volumes are healthy and exceed levels of 2007, but the average bond transaction is 40% smaller today.

HIGH YIELD – AN ASSET ALLOCATION PERSPECTIVE

High Yield is often a misunderstood asset class and tends to receive a nominal portion of investors’ asset allocation. The following attempts to de-bunk some of the common myths associated with investing in high yield bonds and to provide a constructive framework regarding the benefits of high yield.

All Bank Loans are not Created Equal

As a Corporate Bond Manager we often receive inquiries regarding our thoughts on the Bank Loan Market especially in the current interest rate environment where the 10-year US Treasury Bond yield has increased 1% over the last 9 months. We believe that the asset class may warrant a place in an investor’s asset allocation and complement other credit sectors such as Investment Grade Corporates and High Yield but we suggest exercising caution, as all loans are not created equal.

Bond Laddering vs. Single Maturity Investing

It is common for individual fixed income investors to construct portfolios utilizing a “ladder” strategy, purchasing bonds over a specific time frame, 5 or 10 years for example, and in equal installments – an issue coming due each calendar year. This approach is fairly straight forward; however, we find that investors pursuing this type of strategy give up potential return.

Whitepapers

Selected topics that may impact our client community are selected for deeper research and posted here.