Inflows continued in to the high-yield asset class throughout the week, pushing yields further into record low territory. Treasury bonds yields have come off their recent low levels after last Friday’s better than expected jobs report, raising optimism about the economic recovery, but remain well below 2% and currently aren’t any threat to the strength in the high-yield market. The yield on the Bank of America High-Yield (BAML) Index dipped below 5% this week for the first time ever, before closing the week at 5.04%, 4bps tighter on the week, while the spread tightened 10bps on the week to 428bps. For performance, the Bank of America High-Yield Index was better by 0.26% raising the year-to-date total to 5.70%.

This week high-yield bond funds reported inflows of $789 million, following inflows of $474 million, $521 million and $242 million the prior three weeks. These are the largest inflows we’ve seen since Q3 2012. As has been the case this year, the majority of the inflows were into actively managed strategies, with $98 million into index based funds and $691 million in to active funds. For the year actively managed funds have attracted $2.8 billion in new money while the index strategies have received just $261 million in new assets. The high-yield primary market remains active with 27 deals pricing this week for proceeds of just over $10 billion. We expect that this theme will continue as capital markets remain wide open and the demand for yield product remains robust. The biggest threat for high-yield new issues at this point is the record demand we’re seeing in the leveraged loan market this year, which has pulled some refinancing deals away from high-yield.

The Bank of America Merrill Lynch High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg.

Inflows in to high-yield funds were positive for the 4^th straight week with AMG/Lipper reported inflows totaling $789 million last night. As has been the case recently, the inflows were heavily weighted toward actively managed strategies with index ETF’s gaining very little traction over the week. Yesterday was another busy day for new issues with four deals pricing for $2.6 billion in proceeds. Demand for new issue paper remains very strong with most of these books being at least 3-4x oversubscribed, and paper trading up on the break. After a busy week that has already seen 26 new deals print for over $10 billion in proceeds and high-yield index yields dip below 5% for the first time ever, this morning it feels like the market is taking a break, trading basically flat on very low volume.

The yield on the Bank of America High-Yield Index dropped below 5% yesterday, closing at 4.99% at the close; it was only a matter of time. This week has been a very busy earnings week for high-yield companies, with numbers coming in generally okay, but with an outlook that is uncertain and some warnings of weakness. New issues activity continues to be the main focus of the high-yield market and yesterday did not disappoint, with 13 deals coming for $2.8 billion in proceeds, keeping everyone on their toes. Today will not see the same level of activity, but we will still see several deals price this afternoon. The high-yield market feels a tad fatigued this morning, though the underlying strength remains intact.

The Bank of America Merrill Lynch High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg.

More of the same this morning for the high-yield market as money continues to flow into the asset class and demand for both primary and secondary high-yield issues remains very strong across the board. The yield on the Bank of America High-Yield Index closed at another new record low last night, and has now almost traded through 5% closing at 5.004%. Tuesday was one of the busiest primary days in high-yield this year as $4.1bn of new paper hit the market between seven new deals. Today is lining up the same way with many deals expected to price this afternoon, all well oversubscribed.

The Bank of America Merrill Lynch High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg.

Inflows in to high-yield funds continue to accelerate this week with $315 million yesterday alone, and tracking at over $700 million for the week already. It’s worth noting that 90% of the fund flows this week have been in to actively managed funds, and the passive ETF’s have been pretty stagnant. Not surprisingly given the inflows, buy interest for both secondary and new issue high-yield bonds remains very strong. Two deals priced yesterday for proceeds of $700 million, both of which traded higher on the break. This morning equities are mixed, and high-yield bonds remain very well bid.

Friday’s payroll number gave the markets a big boost going in to the weekend, with equities soaring to all-time highs, high yield bond yields tightening to all-time lows and Treasury yields easing off of recent low levels as money went back in to riskier asset classes. Inflows have continued to accelerate over the last couple days, tracking for another big week of inflows this week if everything holds steady. The forward calendar is filling up quickly to start the week with four deals already announced for this afternoon, and more on deck for the rest of the week. This morning equities are opening flat while high-yield bonds remain better bid and offers are hard to find.

With inflows in to high-yield funds picking up over the last couple weeks, yields have pushed further into record low territory on almost a daily basis,  helped by a strong equity market and Treasury yields anchored at low levels. For the week, the yield on the Bank of America High-Yield Index tightened another 21bps to 5.08%, a new record low yield at week’s end, while the spread on the index tightened 23 bps to 438bps. From a spread perspective, these levels remain fairly average given the current low default rate environment, and with expectations for high-yield default rates to remain below 2% for the next several years. With the pace of economic activity expected to continue on at a sluggish pace, a large move higher for Treasuries seems unlikely, which will remain supportive of a strong high-yield market. For performance, the Bank of America High Yield Index returned 1.12% for the week, bringing the year-to-date total to 5.43%.

With the strength of the market throughout the week, the high-yield primary market kicked in to gear pricing 12 deals for proceeds of $6.435 billion. The recent move lower in yields has been accompanied by renewed inflows into high-yield bonds funds with $474mm last week and $763mm for the prior two weeks combined.

The high-yield market is ripping higher again this morning with cash bonds generically better by ¼ point at least, and there are nothing but buyers out there as yield product continues to be in demand. The yield on the Bank of America High Yield Index continues to set new all-time lows on a daily basis closing at 5.12% at yesterday’s close. Primary activity picked up yesterday in a big way with seven deals pricing for $3.6 billion in proceeds, all pricing at the tight end of talk, and all trading higher on the break. This morning, markets are flying with the Dow trading over 15,000 and high-yield cash bonds are better bid across the board.

The Bank of America Merrill Lynch High Yield Index monitors the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.  Index data sourced from Bloomberg.