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 -$7.1 billion.  New issuance for the week was $16.9 billion and year to date issuance is at $327.1 billion.

 (Bloomberg)  High Yield Market Highlights

• The rally in the U.S. junk-bond market appears to be losing steam as CCCs, the riskiest segment in high yield, is poised to post a negative return of 0.35% for the week, which would be the biggest such loss in more than nine months. The five straight weeks of losses have been the longest losing streak since November 2018.
• CCC yields rose 28bps in the last four sessions to 6.25%, and are on track to see the biggest weekly jump in almost three months
• Junk bond investors pulled cash from retail funds, and the funds have seen cash leak in six of the last 10 sessions
• The broader junk bond index is also set to post negative returns for the week, with 0.19%, the biggest weekly decline in more than two months
• That investors were getting wary was evident with BB rated bonds accounting for about 75% of the total bond sales this week
• Investors, though cautious, were not risk averse as almost $17b of new bonds are set to price this week
• The index yields rose 14bps week-to-date to close 4.02%, still low and attractive for borrowers

(Bloomberg)  Clarida Sees 2021 Taper Announcement, 2023 Fed Rate Liftoff

• • Federal Reserve Vice Chairman Richard Clarida said the central bank is on course to pull back on the massive support it is providing to the pandemic-damaged economy, starting with an announcement later this year that it is paring bond purchases and moving on to a liftoff in interest rates in 2023.
  • While acknowledging that the rapid spread of the Delta virus posed a downside risk to the economy, Clarida on Wednesday painted an upbeat picture of the outlook in the coming years as growth powers ahead and inflation falls back from its recent elevated levels.
  • The “necessary conditions for raising the target range for the federal funds rate will have been met by year-end 2022,” paving the way for a lift-off from near-zero rates in 2023
  • His comments helped to harden wagers in the money markets for an initial rate hike in early 2023, after they wavered earlier on news of a marked slowdown in private sector hiring last month
  • The Fed has said it will keep short-term interest rates pinned near zero until the labor market has reached maximum employment and inflation has risen to 2% and is on track to moderately exceed that level for some time. In economic projections released in June, a preponderance of policy makers penciled in two interest-rate hikes by the end of 2023
  • The economy has forged ahead strongly this year, after swooning in 2020 amid the pandemic. Gross domestic product rose at a 6.5% annualized rate in the second quarter, following a 6.3% gain in the first three months of the year
  • “The monetary and fiscal policies presently in place should continue to support the strong expansion in economic activity that is expected to be realized this year, although, obviously, the rapid spread of the Delta variant among the still considerable fraction of the population that is unvaccinated is clearly a downside risk for the outlook,” Clarida said
  • If growth does stay strong, Clarida said he’d be in favor of the Fed making an announcement later this year that it will begin to scale back its bond purchases
  • The Fed is currently buying $120 billion of assets per month — $80 billion of Treasury securities and $40 billion of mortgage backed debt — and has pledged to keep up that pace “until substantial further progress” has been made toward its goals of maximum employment and 2% inflation.

(Bloomberg)  U.S. Job Growth Exceeds Forecast as Unemployment Rate Falls

• • S. employers added the most jobs in nearly a year and the unemployment rate declined faster than forecast, showing the labor market is making more robust gains toward a full recovery.
  • Payrolls climbed by 943,000 last month after an upwardly revised 938,000 increase in June, a Labor Department report showed Friday. The median estimate in a Bloomberg survey of economists called for a 870,000 gain. The unemployment rate dropped by a half percentage point to 5.4%.
  • The dollar and 10-year Treasury yields advanced while stock futures erased gains as traders bet a strengthening labor market will lead Federal Reserve officials to begin pulling back monetary support, including bond buying.
  • A resurgence in economic activity has sparked a surge in labor demand — particularly in the leisure and hospitality industry — since the beginning of the year. At the same time, payrolls remain 5.7 million short of pre-pandemic levels and many employers have struggled to fill a record number of vacant positions.
  • The figures mark a big step toward the Fed’s goal of “substantial” further progress in the labor market recovery. Fed officials including Chair Jerome Powell and Governor Lael Brainard have indicated the labor-market recovery had some way to go before the central bank could begin tapering asset purchases.
  • Fed Governor Christopher Waller said this week that if the next two monthly employment reports show continued gains, he could back such a move.