The average bid of LCD’s flow-name high-yield bonds fell 246 bps in today’s reading, to 91.98% of par, yielding 8.62%, from 94.44% of par on Sept. 24. Performance within the sample was deeply negative, with 13 constituents in the red and 11 by greater than one full point.
Today’s drop takes the average down to a four-year low, or a context not visited since 91.25 on Oct. 6, 2011. It’s also the single largest downside move in the average bid price since that date, when it fell 265 bps amid a squall in the European debt crisis, before rebounding the same amount the next reading.
This time around, declines are linked to ongoing concerns about global economic growth and the commodities crunch, with the latter, in particular, forever defining the state of play for late 2015. The decrease builds on a 186 bps retreat on Thursday, for a net-432 bps decline week over week, and it follows negative observations more mildly in the prior three readings, for a decline of 578 bps dating back four weeks.
Today’s fresh 2015 low now surpasses the depths of December’s oil-related sell-off that put the average at a 2014 low of 93.33 on Dec. 16. Although it had since rallied back for the New Year, the summer sell-off and September slough now have the average 135 bps below that prior low and down 371 bps in the year to date.
Likewise in the broad market, averages have this month turned into the red. To wit, the S&P U.S. Issued High-Yield Corporate Bond Index moved to negative 0.24% at market close on Sept. 22, from positive 0.27% a day earlier, and now sits at negative 1.94% as of market close Sept. 28. One year ago at this point, the index was putting forth a 3.38% year-to-date return.
With the fresh decrease in the average bid price, the average yield to worst jumped 69 bps, to 8.62%, and the average option-adjusted spread to worst gapped out 66 bps, to T+708. Those levels are 2015 wides for both yield and spread. (Note: reconciliation to last week’s yields will be erroneous due to a prior miscalculation on yield to worst.)
Given the small size and more high-beta nature of the flow-name sample, the yield and spread in today’s reading remain a bit wider than the broad index. The S&P U.S. Issued High Yield Corporate Bond Index closed the last reading, Monday, Sept. 28, with a yield to worst of 7.78% and an option-adjusted spread to worst of T+639. – Staff reports