CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were +$5.9 billion and year to date flows stand at -$18.9 billion.  New issuance for the week was $0.6 billion and year to date issuance is at $72.1 billion.

(Bloomberg)  High Yield Market Highlights

• The U.S. junk bond market is springing back into action with more companies looking to issue debt. Investors poured cash into U.S. high-yield funds with an influx of $5.9 billion.
• Borrowers have started testing risk appetite again with sales of senior secured bonds as the leveraged loan market remains on ice, according to one high-yield syndicate banker
• Junk bonds may slip Friday as stock futures fall following disappointing economic data from Europe and ahead of March payrolls that are expected to decline for the first time since 2010
• A jump in oil prices may lend some support with the OPEC+ coalition pushing for other major oil producers to join it in a deep reduction of global crude output
• Junk-bond yields rose 4bps to 9.77% but have dropped by more than 190bps from 11.69% on March 23. Spreads widened 10bp to +919bps
• Junk-bond returns were negative for the second day, with 0.37%
• CAA yields fell 9bps to 18.04% and spreads tightened to +1,772. Posted losses of 0.6%

(Bloomberg)  Investors Clamor for Credit With New Deal Demand Off the Charts 

• Investors are meeting a flood of corporate debt issuance with even greater demand, a strong sign for risk appetite as issuers continue to bring new deals.
• YUM! Brands Inc., bringing the first U.S. high-yield offering in nearly a month, already boosted the size of its deal to $600 million from $500 million amid $3 billion of orders. Oracle Corp., which was downgraded by two credit raters after announcing a deal Monday, has amassed more than $50 billion in orders for what could now be at least a $15 billion offering, according to people with knowledge of the matter.
• Credit markets are showing signs of thawing, as strong reception of record investment-grade issuance has trickled into the high-yield market. While market access was initially limited to only top-notch firms like Exxon Mobil Corp. and PepsiCo Inc. just two weeks ago, investors have since gotten more comfortable with riskier names, and massive demand has cut down borrowing costs.
• Last week, U.S. companies borrowed a record $109 billion, met with $550 billion of demand, in what one dealer called a “food fight” for new bonds. It was a similar story in Europe, where investors placed more than 310 billion euros ($340 billion) of orders for about 75 billion euros of bonds.
• “As corporates should remain keen on retaining liquidity to weather the growing pain of lockdowns, we expect issuance windows to continue to attract issuers,” Commerzbank strategists said in a note to clients this morning.
• YUM! Brands is bringing the first junk bond sale since March 4, one of the most positive signs of the recovery in credit to date. The investment-grade market continues to be active, with 12 deals in the market as of 12:49 p.m. in New York on Monday.
• Airlines worldwide raised more than $17 billion in bank loans in March to shore up finances as the coronavirus grounds flights, with U.S. carriers like Delta the most active.

This information is intended solely to report on investment strategies identified by Cincinnati Asset Management. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. Fixed income securities may be sensitive to prevailing interest rates. When rates rise the value generally declines. Past performance is not a guarantee of future results. Gross of advisory fee performance does not reflect the deduction of investment advisory fees. Our advisory fees are disclosed in Form ADV Part 2A. Accounts managed through brokerage firm programs usually will include additional fees. Returns are calculated monthly in U.S. dollars and include reinvestment of dividends and interest. The index is unmanaged and does not take into account fees, expenses, and transaction costs. It is shown for comparative purposes and is based on information generally available to the public from sources believed to be reliable. No representation is made to its accuracy or completeness.