Credit update July 22, 2013

Wasn’t it just yesterday – or seemed like – when high yield hit north of 5% returns for the year and then took a pounding on QE taper talk? After all, they had returned better than 15% last year and even without QE talk were perched on a precipice of sorts. Well, after the pounding, high yield is on the march back to almost 5% returns YTD. New issuance is back (over $6 billion last week) and fresh inflows into the asset class. Yields have tightened to 6.5% from the wides and that translates into some 400 bps over the ten year treasury. The momentum seems to be set to continue with new issue calendar still strong.

 

Investment grade meanwhile is still under water YTD to the tune of 2% and change. With bank earnings looking good, we will see new issuance from these financial entities swell the investment grade pipe.

 

Bank spreads continued to do well in investment grade land: HSBC, Morgan Stanley etc were in the vanguard of spread tightening.  In high yield, Alpha Natural, First Data did well and Advanced Micro lost some ground.

 

Spreads:

Investment grade +73 bps over swaps

High yield –  5.75% yield to worst.

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