The average bid of LCD’s flow-name high-yield bonds nudged up 21 bps in today’s reading, to 94.48% of par, yielding 7.65%, from 94.27% of par, yielding 7.81%, on Oct. 22. Performance within the 15 bond sample was mixed, with 10 gainers against four decliners and one unchanged.
The small gain dents the large decline of 121 bps recorded on Thursday, for a net decrease of 100 bps week over week. Recall that big plunge was deeply tied to Valeant Pharmaceuticals International 5.875% notes due 2023, which plunged 14.5 points, to 81.5, after two days of drubbing following a damning Street research report. And in today’s observation, it was the largest gainer, up 3.5 points, at 85.
The prior week was back and forth moves that netted essentially no change, so the average is down 104 bps dating back two weeks. In a trailing-four-week observation, however, the measurement picks up on a bit more of the rebound from the September slump. The average is positive 250 bps over that span.
Those two readings flag market momentum of late, with a rebound in early October and mild waffling since then. Technical conditions have been positive recently, as supply has been thin, underlying U.S. Treasury rates remain low, and there has been fresh retail cash inflow to the asset class, including last week’s one-week inflow of $3.3 billion to the asset class, according to Lipper, the most in four years.
Recall that a four-year low of 91.98 was recorded on Sept. 29—the lowest reading in the average bid price since it was at 91.25 on Oct. 6, 2011. The average is up 250 bps since that recent trough, and it’s down 122 bps in the year to date, versus a decline of 536 bps in all of 2014.
With today’s modest gain in the average bid price, the average yield to worst slipped 16 bps, to 7.65%, and the average option-adjusted spread to worst edged inward by 14 bps, to T+624 bps. Year-to-date wides in late September were 8.62% and T+708, respectively.
The yield and spread in today’s reading are still a bit out of line with the broad index, given the small flow-name sample size and outsized influence of select credits in recent observations. To wit, the S&P U.S. Issued High Yield Corporate Bond Index closed the last reading, Monday, Oct. 26, with a yield to worst of 7.28% and an option-adjusted spread to worst of T+597.
Bonds vs. loans
The average bid of LCD’s flow-name loans jumped 46 bps, at 97.64% of par, for a discounted loan yield of 4.31%. The gap between the bond yield and discounted loan yield to maturity is 334 bps. — Staff reports
Bids rise: The average bid of the 15 flow names advanced 21 bps, to 94.48.
- Yields fall: The average yield to worst slipped 16 bps, to 7.65%.
- Spreads tighten: The average spread to U.S. Treasuries inched inward by 14 bps, to T+624.
- Gainers: The largest of the 10 gainers was Valeant Pharmaceuticals 5.875% notes due 2023, which jumped 3.5 points, to 85.
- Decliners: The largest of the four decliners was California Resources 6% notes due 2024, which shed two points, to 66.
- Unchanged: Just Hexion 6.625% notes due 2020 were unchanged, at 87.