CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.3 billion and year to date flows stand at $8.6 billion.  New issuance for the week was $7.2 billion and year to date HY is at $26.9 billion, which is -10% over the same period last year.

(Bloomberg)  High Yield Market Highlights

• Yields on U.S. speculative-grade bonds are set to decline for the fifth week, even as the rally was tempered a bit on Thursday. Fund managers, meanwhile, had their straight week of inflows.
• AVOL priced its drive-by offering amid drifting stocks after boosting its total size by $350m to $1.1b
• Two CCC rated credits priced, one of them to fund a dividend distribution to equity sponsors
• S. high yield continued to operate against the backdrop of strong technicals as reflected in the slow issuance activity and net cash inflows into high-yield retail funds, low default rate, and steady corporate earnings
• Junk bonds, with 5.25% returns YTD, continue to outperform other fixed income assets
• CCCs were leading high yield with 5.85% returns YTD
• Junk bonds leaped ahead leveraged loans this year, which have returned 3.09% YTD

(Bloomberg)  Return of the Junk-Bond Dividend Deal Shows It’s Risk On Again 

• Need more proof that investor appetite for risk-taking is returning in the U.S. junk-bond market? Take a look at the debt being offering by Ascend Learning, the educational software maker acquired two years ago by Blackstone Group and the Canada Pension Plan Investment Board in a leveraged buyout.
• The $300 million high-yield offering is the first since July that will be used to fund a dividend to a company’s owners, a purpose that’s typically seen by investors as riskier than other types of deals. It was the first such deal to launch since Bruin E&P Partners sold $600 million of notes in July to, among other things, fund a payout to its equity sponsors, data compiled by Bloomberg show.
• It’s just the latest sign that investors have returned to the market with a vengeance after fleeing for safer asset classes at the end of 2018.

(Bloomberg)  Fear Goes Missing in the Biggest U.S. Junk Rally in a Decade 

• Traders are going all-in on the best new year rally in U.S. junk bonds since 2009, cutting hedges that help cushion nasty shocks like hawkish monetary moves and weak
  corporate earnings.
• At-the-money implied volatility in the $14.9 billion iShares iBoxx High Yield Corporate Bond ETF has more than halved since the December maelstrom and now sits below historic averages.
• While a resurgence in risk appetite and benign technical have powered a 4.9 percent return this year alone, the rally’s staying power is in question.

(Fortune)  T-Mobile CEO to Congress: We Won’t Use Huawei Equipment After Sprint Acquisition 

• T-Mobile US Chief Executive Officer John Legere says his company doesn’t use equipment from Huawei Technologies Co., and won’t after buying Sprint Corp. to form a bigger No. 3 in the U.S. wireless market.
• “Let me be clear—we do not use Huawei or ZTE network equipment in any area of our network. Period. And we will never use it in our 5G network,” Legere said in written testimony prepared for a hearing Wednesday before the House communications subcommittee.
• The statement is in response to critics who’ve raised the issue of the Chinese equipment maker as a risk to national security to build opposition to the proposed $26.5 billion merger.
• Sprint parent SoftBank Group has “significant ties” to Huawei, as does T-Mobile parent Deutsche Telekom AG, according to Carri Bennet, general counsel for the Rural Wireless Association that represents smaller competitors to the merging parties.
• “Allowing a Japanese-influenced company and German-influenced company to merger when both have significant 5G ties to Huawei appears to run counter to U.S. national security concerns,” Bennet said in testimony submitted for the hearing.