The average bid of high-yield flow-name bonds in the secondary market surged 96 bps over the past three trading sessions, to 104.54% of par, yielding 6.79%, according to LCD, a division of S&P Capital IQ.
The advance builds on a gain of 45 bps on Thursday’s reading, for a net 141 bps gain week over week. But with some softness amid the market lull late last month, the average is up just 124 bps dating back two weeks and higher by only 137 bps reaching back one month.
Most notable, though, is that the average bid not only reaches a fresh 2012 zenith, but it’s now just 31 bps short of the historical peak at 104.85 observed on April 26, 2007 ahead of the credit crisis. (The LCD flow-name sample began observations in September 2001.) And given the low-Treasury rate environment, today’s 2012 peak price yields just 6.79% as compared to 7.69% at the all-time apex in April 2007.
That matches the performance of broader market indexes. Indeed, the Barclays U.S. HY Index bottomed at 6.476% yesterday, while the Bank of America Merrill Lynch HY Master II Index hit a record low of 6.598%.
While those yields appear thin, it’s the nature of the current environment, with the federal government suppressing underlying U.S. Treasury rates to encourage economic expansion. As such, the flow name averages are not near lows on a spread-to-Treasury basis. The current option-adjusted average of the 15 bond sample is T+587, as compared to T+290 dating to the previous market peak in April 2007, according to LCD. And as for the broad-based indexes at close Monday, Sept. 10, the Barclays index at T+547 and the BAML index at T+568 are clearly more than a few ticks above the historical averages in the T+500 context.
Looking back at the LCD flow-name sample tracked twice weekly, the gains were broad based within the sample, with all 15 constituents on higher ground. The standout gainers include a three-point gain for Caesars 10% notes, to 67, and a two-point gain in Chrysler Group 8.25% paper, to 108. And note that seven of the 15 flow name bonds posted gains of one point or greater.
With the latest gain in average price, the average is up 761 bps in the year to date and higher by 747 bps since the depths of the May correction. Moreover, the average is up 1,661 bps since the most recent trough of 87.93 reached on Oct. 4, 2011, according to LCD.
With an advance of the average price today, the average yield slumped 27 bps, to 6.79%, its lowest on record. The average spread-to-worst compressed 23 bps, to T+587, or L+571, swap-adjusted. The spreads are at their thinnest levels since early March of this year.
For reference, the averages at the previous 2012 peak on Sept. 6 were 7.06%, T+610, and L+592, respectively, while levels at the trough three months ago were 8.47%, T+745, and L+710, respectively. – Staff reports