When investing in companies of a lower credit quality, loss given default risk is the key threat that investors have to assess. Consequently, covenant protection is a crucial consideration before lending capital to a company. We wrote about covenant protection back in 2014 and it’s fair to say that covenant quality in the high yield market hasn’t improved much since then; actually quite the opp…Read the article
As James mentioned this morning the European high yield markets’ response to the Trump election victory has been fairly benign. The U.S. high yield market, as one would expect, has been a bit more pronounced, although not as severe as European equities or S&P futures. The U.S. CDX Index, a CDS index of U.S. high yield issuers much like Europe’s Itraxx Crossover, initially dropped nearly two poi…Read the article
After the surprise election result, market reaction within the European high yield market has been surprisingly muted. Here are a few key moves that show how the news is being digested.
In general, the market seems to be pricing in little to no impact for European risk premia, and even for the more potentially directly impacted companies in Latin America, the re-pricing has been very mild.
It …Read the article
With the market currently pricing in an 84% chance of a US interest rate hike in December it appears likely that there is some pressure for bond yields to move higher on a medium term view. This is on top of the re-pricing that we have already seen in risk-free assets like US Treasuries over the course of the past four months. High yield assets are not immune from the laws of bond maths, with l…Read the article
In order to assess value in credit markets, bond investors usually make some assumption about the future path of corporate default rates. This assumption generally stems from macroeconomic forecasts (strong/weak growth = low/high defaults rates) or sector specific events (like oil price movements). Following this, it is possible to get an indication of whether investors are being over- or under…Read the article
As the rhetoric of the U.S. presidential race heats up over the summer campaigning months, one topic we are likely to hear much on is health care. Health care in the U.S. is always a highly charged political subject, and now even more so with extra scrutiny on prescription drug prices and continued debates over the Affordable Care Act (ACA) or Obamacare. Obamacare is deeply unpopular with the…Read the article
It’s been a difficult past few months for all risk assets, including the high yield markets. Weakest of all has been the US, with negative returns of almost 10% over the past year. As part of this re-pricing, spreads have widened significantly, with the US high yield market touching almost 900bps over treasuries. All-in yields also briefly peaked above 10% last month.
Underlying this has been …Read the article
Following the closure of the Third Avenue fund earlier this month, liquidity issues are once again at the forefront of investor’s minds when it comes to the high yield market. Ultimately, conditions will only improve with structural changes to the market but in the meantime we think there are several steps that can be taken to help improve the underlying liquidity profile of a high yield portfo…Read the article
2009 through 2013 were some very good years for the US high yield market. And the energy subset was no exception. Returning 51%, 13%, 9%, 12% & 6% in each of those years, it’s not surprising that the BofA Merrill Lynch US High Yield Energy Index practically trebled in size. Voracious issuance, much of it to fund shale oil development, was met with equally intense buy-side demand and with it ca…Read the article
The temptation to ‘juice-up’ shareholder returns with low yielding corporate debt has been too much to bear for many companies and their investors in recent years. This fad has been well documented and though it may not be a trend we creditors like to observe, we haven’t been entirely surprised to see it play out in 2015 given the seemingly large valuation disconnect between the cost of debt an…Read the article