CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.9 billion and new issuance for the week $6.1 billion.

(Bloomberg)  High Yield Market Highlights

• S. high-yield bonds are set for the longest streak of weekly gains since the first half of 2019 as the global hunt for yield continues to bolster the market.
• The Bloomberg Barclays U.S. high-yield index has posted gains each day this week as yields held steady at 5.11% through Thursday, one basis point lower on the week.
• The high-yield energy index weighed on performance as oil prices lost steam earlier in the week. The securities posted losses for the second consecutive day on Thursday, losing 0.13%; yields on energy bonds ended at 8.12%.
• Even while oil prices dropped back to levels before the Mideast tensions began, issuance activity was driven by energy borrowers.

(Reuters)  Fed focuses on repo market exit strategy after avoiding year-end crunch 

• Wall Street’s worst fears of a year-end funding squeeze never materialized thanks in large part to the quarter-trillion dollars the Federal Reserve stuffed into the market to ensure nothing became gummed up.
• The question now, though, is what it will take for the U.S. central bank to withdraw from its daily liquidity operations in the $2.2 trillion market for repurchase agreements, or repos – after it became a dominant player in a short three months.
• “The repo operations are a band-aid, but the wound isn’t healed fully,” said Gennadiy Goldberg, an interest rate strategist at TD Securities.
• The New York Fed began injecting billions of dollars of liquidity into the repo market in mid-September, when a confluence of events sent the cost of overnight loans as high as 10%, more than four times the Fed’s rate at the time. A month later, the Fed moved to expand its balance sheet – and boost the level of reserves – by snapping up $60 billion a month in U.S. Treasury bills.
• The Fed will continue pumping tens of billions a day into the repo market through at least the end of January. Its ability to exit from the repo market after that time will depend on how long it takes the central bank to make the balance sheet large enough so there are adequate reserves in the banking system – and the repo operations are no longer needed.
• “It seems implausible to me that the Fed will be able to stop their repo operations by the end of January,” said Mark Cabana, head of U.S. rates strategy at Bank of America Merrill Lynch.

(Company Report)  Tenneco Inc. plans to streamline its leadership structure

• The Company announced that Brian Kesseler, Tenneco’s Co-Chief Executive Officer and a member of the Board of Directors, will assume the newly consolidated role of Chief Executive Officer of Tenneco. Kesseler will oversee the operations of the New Tenneco business, in addition to continuing to oversee the DRiV business. Roger Wood will no longer serve as Tenneco’s Co-Chief Executive Officer and is stepping down as a Director of the Company, effective immediately.
• Jason Hollar will continue to serve as Executive Vice President and Chief Financial Officer of Tenneco overseeing the financial organizations of both DRiV and New Tenneco.
• “On behalf of the Board of Directors, I would like to thank Roger for his dedication to Tenneco during a critical time for our company,” said Gregg M. Sherrill, Chairman of the Tenneco Board. “We appreciate his service and contributions in leading the New Tenneco business as we began the integration of the Federal-Mogul acquisition. As we pursue the separation of our businesses, the Board determined that consolidating our leadership structure now will help improve Tenneco’s operational efficiency and achieve our near-term financial performance objectives. We wish Roger the very best in his future endeavors.”
• During 2020, Tenneco will be focused on the execution of its accelerated performance improvement plan to facilitate the expected separation of the businesses.
• As previously discussed in the Company’s third quarter release on October 31, 2019, current end-market conditions are affecting the Company’s ability to complete a separation in the mid-year 2020 time range. The Company expects that these trends will continue throughout this year. The Company is ready to separate the businesses as soon as favorable conditions are present.