Monday Morning Minutes: HY Market Recap (August 26, 2024)
A Brief Recap of Last Week's High Yield Market Performance
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This week’s post will be brief due to the relatively quiet events of last week. If there are any specific areas or additional topics you’d like to see covered in these updates, feel free to let me know. In the meantime, enjoy the final days of summer!
Weekly Performance Recap:
The high yield market continued its positive momentum last week returning +0.71%, following a +0.77% return the previous week. This brings MTD returns to +1.42%, QTD returns to +3.40%, and YTD returns to an impressive +6.07%. By ratings category, CCCs saw the best performance last week, returning +0.95%, led by 38 bps of spread compression. From a sectoral basis, there has been notable dispersion with Telecom and Technology outperforming and Autos and Media lagging.
Adding to the positive market sentiment, Powell’s remarks at the Jackson Hole symposium on Friday signaled a clear shift towards rate cuts. While the size of potential cuts remains uncertain, the Fed appears more focused on labor market risks than inflation concerns. This dovish stance, coupled with mixed economic data including tame jobless claims but a significant downward revision to March 2024 payrolls, has fueled expectations of a more accommodative monetary policy environment, supporting the high yield market’s recent strong performance.
The overall YTW for the HY market now stands at 7.31%, down 17 bps from last week. This compression in yields reflects both a rally in treasuries and a tightening of credit spreads. The market’s YTW now sits at its lowest level this year although spreads are still slightly wider than their lows.
Interesting Sharable Stats:
CCC yields have now decreased for 12 consecutive sessions, the longest declining streak since December 2012
At 7.31%, the HY YTW is at its lowest level since June 2022, a 26-month low
Last week marked the 12th consecutive positive session for high yield bonds, the longest rally since July 2021
Primary Market:
Despite the typical August slowdown, last week saw 1 US HY primary deal as well as a couple of CAD-denominated issuances. Total US HY volumes reached $300 million for the week ended August 23, 2024.
This activity has pushed MTD volumes to $18 billion, marking a 3-year high for August issuance. Additionally, high yield bond issuance now stands at $197 billion YTD, compared to $176 billion for ALL of 2023!
Current market sentiment remains positive, driven by expectations of Fed rate cuts and improved economic data. As we approach the post-Labor Day period, market participants are anticipating a potential surge in issuance activity. The technical backdrop has continued to improve since the volatility seen earlier this month, which bodes well for demand when the #LevFin pipeline opens up after Labor Day. Get ready for an active September!
Notable US deals last week included:
Allied Universal (B3/B) placed a $300 million tap of an existing issue at 100. The bonds traded up 1.5pts following issuance.
Secondary Market:
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Disclosure: The information provided is for informational purposes only and should not be considered as investment advice. Any investment decisions made based on the information provided are at your own risk. It is essential to conduct your own research and consult a qualified financial advisor before making any investment decisions. Investing involves risks, and past performance is not indicative of future results. By using this information, you acknowledge that you are responsible for your own decisions and release me from any liability. Seek professional advice tailored to your financial situation and objectives.