CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.1 billion and year to date flows stand at $47.8 billion. New issuance for the week was $12.7 billion and year to date issuance is at $284.3 billion.

(Bloomberg) High Yield Market Highlights

• The U.S. junk bond market is likely to round out the week on a quiet note as new issue activity winds down and no deals currently slated for Friday. Spreads have come under pressure after the deluge of deals, but overall have been relatively resilient.
• There has been some differentiation in performance by quality amid the modest widening in the past two weeks, Barclays Plc credit strategists led by Brad Rogoff wrote on Friday
• CCCs have posted gains of 0.6% so far in August, while BBs have lost 0.12%, according to data compiled by Bloomberg
• “Month-to-date, the lower-rated cohorts of the investment grade and high yield cash markets have outperformed as there appears to be a bid for higher-beta credits,” the strategists wrote
• Assuming that market volatility remains contained, that may continue
• Investors withdrew $0.1 billion from U.S. high-yield bond funds during the week, the first outflow in seven weeks
• The outflow may be due to “tourists” pulling cash after a strong run, according to Bill Zox, a high- yield bond portfolio manager at Diamond Hill Capital Management
• August issuance volume is $51.74 billion, the second biggest on record
• Travel software provider Sabre GLBL raised $850m from an upsized 5NC2 secured note after drawing orders of more than $3b and despite a downgrade from S&P Global Ratings
• The bond was part of a broader financing to help boost liquidity and get through virus-related disruptions to the industry
• The company’s Ebitda losses and decline in 2020 cash flow will be significant and likely lead to leverage staying above 10x, S&P wrote

(Bloomberg) Fed Minutes Show FOMC Backs Away From September Guidance Shift

• U.S. central bankers appeared to back off from an earlier readiness to clarify their guidance on the future path of interest rates when they met in July.
• “With regard to the outlook for monetary policy beyond this meeting, a number of participants noted that providing greater clarity regarding the likely path of the target range for the federal funds rate would be appropriate at some point,” according to minutes published Wednesday of the Federal Open Market Committee’s July 28-29 meeting, conducted via video conference.
• That’s a subtle change from the previous set of minutes indicating policy makers were keen to sharpen their so-called forward guidance “at upcoming meetings.” The FOMC next gathers on Sept. 15-16.
• Since the last meeting a number of Fed officials have indicated there is less need to offer new guidance so long as the coronavirus is significantly holding the economy back.
• Federal Reserve officials left interest rates unchanged near zero at the gathering and continued to buy Treasury and mortgage-backed bonds at a pace of about $120 billion a month: actions that were aimed at nursing the economy through the severe recession triggered by the coronavirus pandemic.
• Even as they ratcheted down the urgency of altering their guidance in the near term, policy makers continued to discuss the conditions that would merit an eventual rate increase. These included the possibility of pinning changes to the federal funds rate to an outcome on inflation or employment, as well as sharpening the language around asset purchases in terms of “fostering accommodative financial conditions and supporting economic recovery.”
• “Members agreed that the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term,” the minutes said.
• “Participants saw less improvement in the business sector in recent months, and they noted that their district business contacts continued to report extraordinarily high levels of uncertainty and risks,” the record showed.