CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$3.9 billion and year to date flows stand at -$31.1 billion.  New issuance for the week was $2.8 billion and year to date issuance is at $39.2 billion.

(Bloomberg)  High Yield Market Highlights

• U.S. junk-bond investors turned to fast-food operator Yum Brands in the primary market on Thursday after inflation concerns, a hawkish Federal Reserve and the war in Ukraine drove issuance to the slowest month in two years. Yum Brands sold $1b 10-year notes, rated Ba3/BB, at 5.375%, the lower end of price talk, after underwriters received orders more than $2.9b. The bond sale was increased by $500m to $1b.
• With yields volatile, borrowers are tapping the market when windows of opportunity arises to refinance or to fund acquisitions that have to close soon.
• YUM Brands sold primarily to refinance 7.75% 2025 notes that were callable on April 1.
• “The overall fundamentals are solid, with leverage back to pre- pandemic levels and higher interest coverage, which should provide a cushion against near-term macro risks and rising rates,” Barlcays’s strategist Brad Rogoff wrote on Friday.
• U.S. junk bonds held steady for the second straight session as yields and returns were largely flat and equities rallied amid a broader risk-on sentiment.
• While there was no serious loss of risk appetite or rising default fears priced into recent new issues, investors pulled cash out junk bond funds following a rise in yields and increased volatility.
• The U.S. high yield funds reported an outflow for the 11th consecutive week and the longest streak of outflows since 2007.

(Bloomberg)  Powell Is Ready to Back Half-Point Hike in May If Necessary

• Federal Reserve Chair Jerome Powell said the central bank is prepared to raise interest rates by a half percentage-point at its next meeting if needed, deploying a more aggressive tone toward curbing inflation than he used just a few days earlier.
• Policy makers raised the benchmark lending rate by a quarter point at their meeting last week — ending two years of near-zero borrowing costs — and signaled six more hikes of that magnitude this year, based on the median projection. Powell indicated that half-point hikes may be on the table when policy makers next gather May 3-4 and at subsequent sessions.
• “If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,” Powell said in a speech titled “Restoring Price Stability” to the National Association for Business Economics on Monday.
• Following his formal remarks, Powell was asked by the moderator if there was anything stopping policy makers from hiking by a half point in May, which would be the first increase of that magnitude since 2000.
• “What would prevent us? Nothing: Executive summary,” he said, drawing laughs from the audience. He added that such a decision had not been made, but acknowledged it was possible if warranted by incoming data.
• “My colleagues and I may well reach the conclusion that we’ll need to move more quickly and if so we will do so,” he said.
• Powell was more hawkish on Monday than at the press conference following last week’s meeting, indicating that if inflation continues to run hot he would favor a more aggressive pace of tightening. Last week he had to speak for the range of views among the 16 policy makers currently on the Federal Open market Committee.
• Markets heard the chair’s message and moved sharply in response, sending Treasury yields spiking higher as investors increased bets that the Fed will raise interest rates by a half point in May to confront the hottest inflation in 40 years.
• Goldman Sachs Group Inc.’s economists led by Jan Hatzius saw the comments as a hawkish signal and now expect the Fed to raise interest rates by 50 basis points at both its May and June policy meetings, followed by four 25 basis point increases in the second half of the year.