We saw some outflows from credit funds but they quickly reversed course last week, ending up net a tad positive. This kind of shows that market volatility is probably making some investors trigger-happy about pulling funds from an asset class that has had such a great two year run. The ten-year treasury meanwhile, has finally broken past 2% and this is also capturing a lot of attention as investors re-evaluate the wisdom of holding investment-grade credit yielding 2.75%. The much-cried about sector rotation from bonds to stocks has not yet happened because of the amount of cash sitting on the sidelines and which has worked itself into equity portfolios. Once that cash cycle nears exhaustion, I think we will start seeing real outflows from credit into equities, especially at the investment-grade level.
New issues are still strong and frequent as the corporate re-levering is starting its course. As the WSJ reported, LBO activity seems to be on the rise and re-financings and new debt issues are bound to occur in sync.
Investment Grade .. 88 bps over swaps.. 2.75% average
High Yield .. close to 5.8% yields