{"id":10179,"date":"2020-04-27T13:46:16","date_gmt":"2020-04-27T13:46:16","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=10179"},"modified":"2020-04-27T13:46:16","modified_gmt":"2020-04-27T13:46:16","slug":"high-yield-struggled-last-week-the-asset-class-remains-cheap","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=10179","title":{"rendered":"High Yield Struggled Last Week – the Asset Class Remains Cheap"},"content":{"rendered":"
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This is a spreadsheet kept on Bloomberg bond market data, which i find very helpful (the Bloomberg data, not the spreadsheet). The data is thrown up once a week to keep an eye on asset classes that don’t really get much attention from the mainstream financial media.<\/p>\n

The spreadsheet shows the pain in the various bond market categories before and through the pandemic worries and then the start of the Fed stimulus.<\/p>\n

HYG, iShares High-yield ETF is down 9.71% YTD, and you can’t help but wonder how much is due to the Energy sector, with Diamond Offshore filing for bankruptcy this weekend.<\/p>\n

HYG’s weighting in Energy per the iShares ETF website, is 8.5%.<\/p>\n

What may me more interesting to readers is that iShares started an “ex gas and oil” ETF with the ticker HYXE. The HYXE was down 7.09% as of April 24th, 2020.<\/p>\n

As of last Friday, investment grade corporates total return vs high yield total return was at its highest spread of the pandemic.<\/p>\n

The drop in high-grade credit during the week of March 23rd was truly frightening: between March 9th and March 19th, the LQD (investment-grade ETF) dropped from $133 to $104.95.<\/p>\n

Summary \/ conclusion: <\/strong><\/em>Using Morningstar data, the above spreadsheet was started to keep a weekly eye on bond market asset classes, since monthly index data is too infrequent. Tracking fixed-income sector ETF’s (like the MBB or Mortgage-backed ETF) is helpful too.<\/p>\n

The point of the post is that while high-yield struggled last week, including muni high-yield, the asset class remains relatively attractive from a “current yield” and an “expected total return” perspective.<\/p>\n

The Fed stimulus and liquidity expansions, such as the liquidity lines as well as buying select high-yield credits for the Fed balance sheet should help support the asset class.<\/p>\n

Energy, retail, mall CMBS, and airline credits are all sectors under severe stress.<\/p>\n

The Energy sector is likely to see the biggest rash of immediate bankruptcies due to the drop in crude oil, but all of the above will likely see filings.<\/p>\n

The mainstream financial media doesn’t offer give the credit markets the attention they deserve. A Constellium high-yield credit yielding 8.5% that no one’s ever heard of isn’t nearly as interesting as Amazon or Zoom, but the asset class is very important to healthy functioning of the capital markets.<\/p>\n

The difference in total return between the HYG and the HYXE is one tell that high-yield in general remains cheaper relative to high-grade and higher-rated credits.<\/p>\n

Take this opinion and all opinions with substantial skepticism. The markets change quickly and the data might not be updated with any frequency or at all.<\/p>\n

Thanks for reading.<\/p>\n

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  This is a spreadsheet kept on Bloomberg bond market data, which i find very helpful (the Bloomberg data, not…<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[244,40],"tags":[],"class_list":["post-10179","post","type-post","status-publish","format-standard","hentry","category-high-yield-credit","category-hyg"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/10179","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=10179"}],"version-history":[{"count":4,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/10179\/revisions"}],"predecessor-version":[{"id":10184,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/10179\/revisions\/10184"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=10179"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=10179"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=10179"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}