CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$0.4 billion and year to date flows stand at -$1.8 billion.  New issuance for the week was $15.1 billion and year to date issuance is at $399.1 billion. 

(Bloomberg)  High Yield Market Highlights 

• The U.S. junk-bond market posted gains on Thursday, ending a three-day run of losses, and yields fell amid an onslaught of issuance.
• “Despite a recent pull back in valuations, the high-yield market remains relatively compressed. With dispersion at low levels, investors are finding it increasingly difficult to find opportunities in the secondary market,” Barclays strategist Brad Rogoff wrote in note on Friday.
• The primary market is crowded with debut issuers, companies borrowing after emerging from bankruptcy and LBOs.
• Amid reports of inflationary pressures, with the 5-year U.S. Treasury yield climbing to a 19-month high of 1.02%, the U.S. junk-bond index came under some modest pressure as it is headed a loss for the third consecutive week.
• Yields fell 5bps to close at 4.11% on Thursday and spreads closed at +293.
• The riskiest slice of the junk bond market, CCCs, posted gains on Thursday, the biggest one-day returns in two weeks.
• CCC yields dropped 12bps to 6.18%, a two-week low and the biggest one-day decline in three weeks.
• Junk bonds may stall as U.S. equity futures drift as investors await for key employment report for clues on the Federal Reserve’s monetary policy.

(The Wall Street Journal)  Biden Backs Powell After Warren Intensifies Opposition 

• President Biden said he has confidence in Federal Reserve Chairman Jerome Powell after Sen. Elizabeth Warren (D., Mass.) on Tuesday escalated her criticismof the central bank’s leader.
• “Thus far, yes,” Mr. Biden said when asked by a reporter during a trip to Michigan if he had confidence in Mr. Powell. “But I’m just catching up to some of these assertions,” he said, referring to senior officials’ trading activitiesthat sparked Ms. Warren’s most recent volley of disapproval.
• Biden gave no indication he has made a decision over whether to offer Mr. Powell a second term when his current one expires in February. Members of Mr. Biden’s economic team have supported keeping Mr. Powell. However, Ms. Warren’s vocal opposition has complicated Mr. Biden’s political calculus, as he tries to balance moderate and progressive demandson his signature domestic policy goals.
• Several members of both parties have also voiced supportin recent weeks for Mr. Powell’s renomination, giving him high marks for his response to the pandemic. Some Democrats have been heartened by his public comments that recent inflationary pressures, because they are being driven by temporary supply-chain disruptions, don’t require an immediate policy response from the Fed.
• But a vocal minority of Democrats, led by Ms. Warren, have called for his replacement and favor someone who would be more active in pressing the central bank to regulate banks and address climate-related risks. Ms. Warren last week told Mr. Powell at a hearing that his record favoring a lighter touch on banks made him a “dangerous man” to lead the Fed and that she would not support his nomination.
• Powell is a Republican who was first nominated to the Fed’s board 10 years ago by President Obama. He was named as Fed chairman by President Trump in 2018.

(Bloomberg)  Senate Passes Short-Term Boost in Debt Limit 

• The Senate approved legislation yesterday that pulls the nation from the brink of a first-ever payment default with a short-term debt-ceiling increase, breaking a weeks-long stalemate that rattled financial markets.
• The vote was 50-48, with no Republicans in favor of the measure that simply kicks the can toward another precarious debt-limit fight in less than two months. The $480 billion increase in statutory borrowing would run out around Dec. 3.
• The debt limit increase still needs a vote in the House. House Majority Leader Steny Hoyer (D-Md.) said last night the chamber will vote on the measure on Tuesday. It’s expected to pass there, and the White House said President Joe Biden looked forward to signing into law.
• Schumer and Minority Leader Mitch McConnell (R-Ky.) struck a deal for the legislation earlier yesterday. The timeline sets up a collision course where various fiscal and policy battles will play out roughly simultaneously.
• Funding for government operations also expires on Dec. 3, risking a government shutdown unless lawmakers can complete agency budgets for this fiscal year. Also, Democrats could be trying to push through Biden’s broad economic package around that time.
• Leading up to December, Republicans will again push Democrats to raise the debt ceiling on their own through the budget reconciliation process—unless Democrats agree to drop their up-to-$3.5 trillion social tax and spending bill, a cornerstone of Biden’s legislative agenda. Democrats have agreed to push back the deadline to December, but haven’t agreed to act the next time through reconciliation.
• That gives Democrats roughly eight weeks, if they choose to pursue the complex process they sought to avoid, to push a measure through equally-divided Senate committees and allow a lengthy series of floor votes sought by Republicans.