HYG And U.S. High-Yield Market Outlook: Week Ending September 16, 2018

During the last week, the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA: HYG) gained 0.74% (74 bps). HYG steadily grew every day during last week. High-yield bond spreads are narrowing beyond a general appetite for U.S. dollar-denominated risk assets that has lifted high yield returns close to peak after general market slowdown in January. The risk appetite increased primarily due to positive news from Turkey- Turkish Central Bank sharply increased an interest rate. It boosted flows in high-yield assets not only in EM but also in the U.S.
Figure 1. HYG ETF price dynamics during the week ending September 16

Source: Bloomberg Terminal
The underlying HYG portfolio was up 34 bps, while change in premium added 21 bps more. Other discrepancies had positive effect of 19 bps, causing HYG to increase by 74 bps (see Figure 2).
Figure 2. Contribution of sectors to changes in HYG over the week
Source: Bloomberg Terminal
US Treasuries yield curve changed last week. The spread between short-term and long-term bonds decreased. Shorter tenor part of the curve increased by 2.2 bps (2Y yield) while 10Y UST yield increased by 1.6 bps (see Figure 3). The 10Y UST yield broke above 3 percent for the first time in a month on growing expectations the Fed will increase interest rate on September 26, and probably follow it up with one more increase before the end of 2018. The yield on the 2Y Treasury hit the highest level since July 2008. Investors raised their... Read more