CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$2.7 billion.  New issuance for the week was $8.2 billion and year to date HY is at $35.7 billion.

(Bloomberg)  High Yield Market Highlights

• S. junk-bonds are heading for their second weekly loss amid fears about the spreading coronavirus from China. Investors pulled $2.7 billion from high-yield retail funds, the biggest cash withdrawal in almost six months, and exchange-traded funds are continuing to leak cash.
• Junk-bond returns turned negative for the second time this week posting a loss of 0.16% Thursday. The CAA index posted losses of 0.17% and is also set for its second weekly declines
• Those falls may extend Friday with stock futures lower. Oil prices are higher this morning, but fell to an almost six-month low on Thursday, weighing on the high-yield energy index
• Junk bond yields rose 9 basis points to 5.49%, the biggest weekly jump since October, while spreads widened 11 basis points to 382 basis points over Treasuries
• Single-B yields jumped 10 basis points to 5.46%, while CAA yields rose 9 basis points to 10.32%
• The two biggest high-yield ETFs — HYG and JNK — saw a combined outflow of $547 million in the last session as outflows continue

(Business Wire)  Arconic Reports Financial Results

• Arconic Inc. reported fourth quarter 2019 and full year 2019 results. The Company reported fourth quarter revenues of $3.4 billion, down 2% year over year. Organic revenue was up 1% year over year on growth in the aerospace, packaging and industrial markets and favorable product pricing, largely offset by weakness in the automotive, commercial transportation, and building and construction markets.
• Operating income excluding special items was $444 million, up 37% year over year, driven by net cost reductions, favorable product pricing, and favorable aluminum and raw material costs, partially offset by lower volumes in automotive and commercial transportation. Full year 2019 operating income was $1.0 billion versus $1.3 billion in the full year 2018. Operating income excluding special items for full year 2019 was $1.8 billion versus $1.4 billion in the full year 2018, driven by favorable product pricing; net cost reductions; volume growth in aerospace, packaging and commercial transportation markets; and favorable aluminum and raw material costs. These impacts were partially offset by unfavorable product mix.
• Arconic Chairman and Chief Executive Officer John Plant said, “In 2019, the Arconic team delivered improved revenue, adjusted operating income, adjusted operating income margin, adjusted free cash flow and adjusted earnings per share. Arconic’s 2019 return on net assets improved by 450 basis points year over year to 13.7%.”

(Bloomberg)  Fed Holds Main Rate as Powell Stresses Need to Hit 2% Inflation

• The Federal Reserve kept its key interest rate unchanged and continued to signal policy would stay on hold for the time being, while stressing the importance of lifting inflation to officials’ target.
• The central bank also made a technical adjustment to the rate it pays on reserve balances and said it would extend at least through April a program aimed at smoothing volatility in
  money markets.
• “We believe monetary policy is well positioned to serve the American people by supporting continued economic growth,” Chairman Jerome Powell told a press conference Wednesday in Washington.
• Officials kept the target range of the benchmark federal funds rate at 1.5% to 1.75% and called that stance “appropriate to support sustained expansion of economic activity.”
• S. stocks erased gains while yields on the 10-year Treasury note declined and the dollar fluctuated. Traders extended bets the Fed would cut rates toward the end of this year.
• “The Fed has made it clear that the barriers to move in either direction are quite high,” said said Daniel Ahn, the chief U.S. economist at BNP Paribas. “But we believe the wall
  for a cut is lower than the wall for a hike.” He detected a “dovish tilt” in Powell’s efforts to stress the Fed was uncomfortable with inflation running persistently too low.
• Policy makers changed their statement to say that the current stance of monetary policy is appropriate to support “inflation returning to the committee’s symmetric 2% objective.” Previously they had said policy was supporting inflation “near” the goal.
• Powell explained in his press conference that the change was made to send “a clearer signal” that the committee was not comfortable with inflation running persistently below target. “We wanted to underscore our commitment to 2% not being a ceiling,” he said.
• Their preferred gauge of price pressures — the personal consumption expenditures price index — rose 1.5% for the 12 months ending in November. Powell said inflation was expected to move closer to 2% over the next few months thanks to so-called base effects, “as unusually low readings from early 2019 drop out of the calculation.”