CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$2.5 billion and year to date flows stand at $12.5 billion.  New issuance for the week was $4.0 billion and year to date HY is at $94.9 billion, which is +12% over the same period last year.

(Bloomberg)  High Yield Market Highlights

• S. junk bonds gained 0.19% yesterday, the most in 7 weeks, as stocks rallied and the VIX fell. This morning’s equity retreat and the biggest fund outflows since December call into the question the sustainability of the move higher.
• Junk bond yields dropped across ratings, with the biggest decline in 5 weeks, but nervous investors pulled cash out of retail funds for a second week
• Lipper reported an outflow of $2.57b from U.S. high yield for week ended May 15, the most since December, amid trade war jitters
• Berry Global is set to price a smaller than expected deal today
• Three new deals priced yesterday. All priced at the lower end talk
• Junk bond energy saw the best performance in 6 weeks after posting losses for more than 10 weeks, with 0.25% yesterday
• High-yield energy YTD return was 8.67%
• High-yield returns ex-energy also turned positive, with YTD at 8.086%
• BBs at 7.99%, single-Bs 8.25%
• CCCs at 7.964% YTD
• Loans lag junk bonds, with a 5.67% YTD gain

(Reuters)  U.S. states accuse Teva, other drugmakers, of price-fixing: lawsuit 

• S. states filed a lawsuit accusing Teva Pharmaceuticals USA Inc of orchestrating a sweeping scheme with 19 other drug companies to inflate drug prices – sometimes by more than 1,000% – and stifle competition for generic drugs, state prosecutors said on Saturday.
• Soaring drug prices from both branded and generic manufacturers have sparked outrage and investigations in the United States. The criticism has come from across the political spectrum, from President Donald Trump, a Republican, to progressive Democrats including U.S. Senator Elizabeth Warren, who is running for president.
• The 20 drug companies engaged in illegal conspiracies to divide up the market for drugs to avoid competing and, in some cases, conspired to either prevent prices from dropping or to raise them, according to the complaint by 44 U.S. states, filed on Friday in the U.S. District Court in Connecticut.
• “The allegations in this new complaint, and in the litigation more generally, are just that – allegations,” Teva said in a statement. “Teva continues to review the issue internally and has not engaged in any conduct that would lead to civil or criminal liability.”
• “Apparently unsatisfied with the status quo of ‘fair share’ and the mere avoidance of price erosion, Teva and its co-conspirators embarked on one of the most egregious and damaging price-fixing conspiracies in the history of the United States,” the complaint said.

(Bloomberg)  Looming U.S. Junk Bond Risk May Shrink With Fed’s Help 

• One of the biggest risks in the junk bond market is showing signs of diminishing, with help from the Federal Reserve.
• Nearly a third of the $1.2 trillion U.S. high-yield market matures in the next four years, a record high proportion, according to Barclays Plc strategists led by Bradley Rogoff. Junk-rated companies have to refinance that debt, pay it off, or face bankruptcy.
• They have years to sort out that risk, but many are doing it now: companies have issued more than $80 billion of bonds this year that listed refinancing as one of the uses of proceeds, according to data compiled by Bloomberg, accounting for more than 70% of issuance this year.
• “Companies are extending maturities out, and that’s healthy,” said Scott Roberts, head of high-yield debt at Invesco Ltd. Refinancing is a better use of debt than buying back shares, he added. “I’ve seen frothy before and this is not it.”
• Corporations have ample incentive to deal with future debt maturities soon: on average they can reduce interest costs by issuing securities at current yields, the Barclays strategists said. Those relatively low borrowing costs are in part because of the Fed, which has paused its rate hikes, spurring money managers to pile into junk bonds in search of yield. Even with recent declines in high-yield securities, the debt has gained 8.3% this year through Friday, according to Bloomberg Barclays index data.
• “I feel good about this high-yield market and we are trying to push issuers to take advantage of it,” said Richard Zogheb, global head of debt capital markets at Citigroup Inc. “Investors are so excited now that the underlying rate environment is more dovish, and that’s really good news for high-yield borrowers.”
• Investment bankers say companies are taking notice of the opportunities to issue, and not just for refinancing. Corporations sold around $12 billion of U.S. junk bonds last week, the highest level in around 20 months, according to data compiled by Bloomberg.

(Bloomberg)  China Downplays Chances for Trade Talks While U.S. Plays ‘Little Tricks’

• China’s state media signaled a lack of interest in resuming trade talks with the U.S. under the current threat to escalate tariffs, while the government said stimulus will be stepped up to buttress the domestic economy.
• Without new moves that show the U.S. is sincere, it is meaningless for its officials to come to China and have trade talks, according to a commentary by the blog Taoran Notes, which was carried by state-run Xinhua News Agency and the People’s Daily, the Communist Party’s mouthpiece. The Ministry of Commerce spokesman said Thursday he had no information about any U.S. officials coming to Beijing for further talks.
• The indications that negotiations are paused will focus attention on the next opportunity for Presidents Xi Jinping and Donald Trump to meet — at the Group of Twenty meeting in Japan next month. Their meeting in Argentina in December last year put negotiations back on track, only for them to fall apart again this month in Washington.
• S. Treasury Secretary Steven Mnuchin said this week that American officials “most likely will go to Beijing at some point” in the near future to continue trade talks, before later saying he has “no plans yet to go to China.”