U.S. High-Yield Market Outlook: Week Ending December 22, 2017

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The outlook is based in BOFA 1,870 debt issues, which together represent c. $1.25 trln in principal amount (most of the issues are represented in HYG)
US High Yield Index was down again last week, this time by as much as 11.6 bps. Most of the decline came from Communications this week, which fell sharply again by 30 bps and contributed over half of the overall HY decline, as it can be seen from Figure 1. Financials were the second worst on weighted basis and in absolute terms lost 26 bps. Utilities continued to suffer: the sector declined by 34 bps. Consumer non-cyclicals were up this week by 21 bps, they are also the best performing sector for last month, despite declines over previous two weeks.
Figure 1. Contribution of sectors to changes in BOFA High-Yield Index over the week

Source: Bloomberg Terminal, Lighthouse Research
Figure 2. Change in US Treasury Active Contracts Curve for the last week

Source: Bloomberg Terminal
US Treasuries & Tax Reform
The primary reason of HY decline this week was strong upward movement of US Treasury Curve which ranged between 2.7 and 8.8 bps rise in yields for contracts with maturities in 1 to 10 year, respectively (see figure 2). Such move is something many investors anticipated for months as “rates hiking” and “balance sheet unwinding” are now in a full swing. Passing... Read more