High Yield Market is Hot

AMG data came out earlier today: High Yield mutual funds saw nearly $1B in inflows. This marks three weeks of very large inflows to the high yield market: $3.0B over the last three weeks. Here is a chart of the iBoxx $ High Yield Corporate Bond Fund (an ETF)

What I find interesting about this mini rally: It feels to me like the higher quality credits are outperforming the lower quality credits. And it looks (from the chart below) that the distressed ratio (number of issuers with bonds 1000 over treasuries) hasn't really budged over the past three weeks.

And empirically: Over the last two or three weeks, everyone is looking for "safe 8-9% paper" - feels like people are protecting their years. We have participated in this rally and sold a number of HY positions thinking things have gotten ahead of themselves. Time will tell.


David Merkel 7/30/2010  

It's pretty normal for higher quality issues to lead a rally in the early stages. Rallies often begin higher quality and short-term, and move to lower-quality and long-term.


hunter [at] distressed-debt-investing [dot] com

About Me

I have spent the majority of my career as a value investor. For the past 8 years, I have worked on the buy side as a distressed debt and high yield investor.