High Yield Bond Market – Outlook has changed to the positive, away from the recent stories of overvaluation and fund withdrawals.
The S&P U.S. Issued High Yield Corporate Bond Index returned 1% last week and a 0.43% the week before to recover the loss incurred the last week of July (-1.38%). Year-to-date the index is returning 5.10%. As entitled in Katy Burne’s Wall Street Journal article, “Big Investors Snap Up Junk Bonds,” institutional investors have stepped up their buying, seeing value in current prices after the recent sell-off.
Investment Grade Market – Issuance has been heavy.
Names like American Express, American Water Capital, Burlington Northern, CBS Corp, Motorola, Prudential and UBS came to market. The total market value of the S&P U.S. Issued Investment Grade Corporate Bond Index has increased by almost 10% since the beginning of the year. The index has returned 1.10% month-to-date and 6.76% this year.
Treasury yields backed off this morning.
Yields rose 2.38% in response to the easing of geopolitical events after tightening all last week. The yield of the S&P/BGCantor Current 10 Year U.S. Treasury Bond Index tightened from 2.42% to 2.33% last week.The index is now returning 8.34% year-to-date.
The Treasury auction calendar for this week contains the weekly Bill auctions along with $16 billion 5-year TIPS. Next week’s calendar is full of auctions, as 2-year fixed and floating along with 5 and 7-year auctions are scheduled.
The economic calendar for the week ahead is loaded with significant indicators. Today’s NAHB Housing Market Index for August reported a 55, stronger than the expected 53 which was the prior July number. CPI for July is expected to be 0.1% tomorrow, after last month’s 0.26% broke a string of increasing values going back to March. In addition to CPI, Housing starts are expected to rise to a 966k from the prior 893k, while an increase in the Building Permits release is expected to be 1,000k. Wednesday is the focal point of the week as the Fed will release the meeting notes of the July 29th / 30th FOMC meeting. On Thursday, the following releases will close out the week: August 16th Initial Jobless (2520k exp.), the Philadelphia Fed Business Outlook (19.4 vs. the prior 23.9), Existing Home Sales (5.01m exp. vs. 5.04m prior) and the Conference Board U.S. Leading Indicator Index (0.6% exp.)
Source: S&P Dow Jones Indices, data as of 8/15/2014