HY Market Weekly Minutes: Market Takes a Breather as CPI Firms and Powell Turns Hawkish (November 15, 2024)
A Brief Recap of Last Week's High Yield Market Performance
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The high yield market hit pause this week after its recent post-election rally, as investors digested firmer inflation data and unexpectedly hawkish comments from Fed Chair Powell. Spreads widened 10bps to 266bps while the overall index returned -0.36%, marking its first weekly loss after 6 consecutive gains. The pause comes as October core CPI showed surprising strength at 0.28% month-over-month and Powell emphasized that “the economy is not sending any signals that we need to be in a hurry to lower rates.”
The mixed economic data was particularly evident in last week’s data. While retail sales rose 0.4% overall, industrial production fell 0.3% amid strike impacts. However, the Empire Manufacturing Index surged to 31.2 from -11.9—its highest reading since December 2021—suggesting potential post-election business optimism. Adding to the complexity, the Senior Loan Officer Survey showed continued tightening in commercial real estate lending standards even as Trump’s proposed tariffs and immigration policies raise fresh inflation concerns.
Despite the setback, market technicals remain remarkably robust. Primary market activity surged with eight new deals totaling $4.3 billion, including Molina Healthcare’s $750 million offering that priced at an astonishing 182bps. Even more telling—Global Auto’s $540 million CCC-rated deal saw strong demand, trading up ~2pts post-issue. When issuers can upsize deals and price through guidance across the ratings spectrum even as spreads approach historical tights, it speaks volumes about the technical backdrop.
Let’s dive in.
Weekly Performance Recap
For the week ended November 15th, the high yield market retreated modestly with the overall index returning -0.36%. This brings month-to-date returns to +0.43% and maintains YTD gains at a healthy +7.88%. More notably, yields climbed across the rating spectrum with the overall market yield rising 17bps to 7.29% as Treasury rates remained volatile following Powell’s hawkish commentary. The market’s performance reflected growing caution around inflation after October’s CPI report showed more persistent price pressures. Core CPI increased 0.28% month-over-month, while core PPI surprised to the upside at 0.3%.
Breaking down performance by rating category:
BBs declined -0.40%, bringing YTD returns to +6.15%
Bs also fell -0.40%, with YTD returns now at +7.03%
CCCs showed relative resilience at -0.17%, maintaining an impressive YTD return of +14.23%
Primary Market Activity
Primary issuance accelerated sharply this week with eight deals totaling $4.29 billion, up from just one $500 million transaction last week. Most notably, Molina Healthcare priced $750 million of BB-rated notes at 182bps, marking the tightest pricing since 2021.
Standout Transactions:
Molina Healthcare placed $750 million of BB/Ba2 8.25-year senior notes at par to yield 6.25%, upsized from $500 million
Global Auto issued $540 million of B3/B+ unsecured notes at 11.5% to fund the KWB acquisition
Icahn Enterprises executed a $500 million secured refinancing at 10%, following S&P’s downgrade to BB-
Secondary Market Dynamics
Looking Ahead
Markets face continued crosscurrents as year-end approaches. With spreads near post-GFC tights at 266bps and Treasury volatility elevated, investors are weighing strong technicals against potential inflation risks. Powell’s comments suggesting less urgency around rate cuts add another wrinkle to the outlook.
The economic picture remains complex. While retail sales rose 0.4% in October, the critical control group declined 0.1%, and the Senior Loan Officer Survey showed continued tightening in commercial real estate lending standards. The combination of sticky inflation and cooling consumer demand could challenge the market’s optimistic stance, particularly with spreads approaching the all-time tights last seen in 2007.
The incoming Trump administration adds another layer of complexity. While markets have embraced the deregulation narrative, proposed policies like 60% tariffs on Chinese imports and immigration restrictions could fuel further inflation pressures just as the Fed is trying to engineer a soft landing.
As we approach year-end, the market faces an important test: can technical strength and solid corporate fundamentals continue to support spreads near historical tights even as inflation proves stickier than expected and monetary policy potentially less accommodative? The next few weeks of economic data and Fed commentary should help answer this question.
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"Most notably, Molina Healthcare priced $750 million of BB-rated notes at 182bps, marking the tightest pricing since 2021."
Does this include Hilton Domestic's 5.875% 550mm notes issued in March/2024?
Ford Motor also issued at a lower spread basis in January/2022 but anyhow. I assume this slipped because they're now low-quality IG but they were in fact HY at the time