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Junk Bond Issuance Rose amid Falling Energy Prices and Poor GDP Data

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Junk Bond Issuance Rose amid Falling Energy Prices and Poor GDP Data PART 1 OF 6

US Stock Indices Were Mixed amid Soft Economic Growth

US stock indices were mixed

The three US equity indices that we review in this weekly series ended mixed during the period from July 27 to August 3, 2016, due to disappointing economic growth data and a drop in oil prices (EXM) (CVX). Investors’ appetite for risky assets declined amid soft economic data and a slump in oil prices. This is reigniting concerns about a global slowdown. From July 19 to July 26, the S&P 500 index, tracked by the Vanguard 500 Index Fund Investor Class (VFINX), and the SPDR S&P 500 ETF (SPY) both fell 0.5%. The Dow Jones Industrial Average (DJIA) fell by 0.8%, while NASDAQ rose 0.1%.

The ADP private payrolls report was better than expected. It’s a flash reading of the US jobs report due on August 5. Improvement in the labor market is one of the key factors that the Fed’s looking at to go ahead with the rate hike. Meanwhile, Atlanta Fed President Dennis Lockhart said in an interview with CNBC on August 2 that “At this point, I don’t rule out a rate increase at the next meeting or later in the year.”

US Stock Indices Were Mixed amid Soft Economic Growth

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On the earnings side, shares of Time Warner (TWX), AIG (AIG), Fitbit (FIT), and Etsy (ETSY) rose after better-than-expected earnings results.

High-grade bond market

Yields fell across the Treasury yield curve for the week ending July 29. Disappointing GDP data crushed the hopes of a rate hike in the coming months. Also, a poor stock market performance due to a drop in oil prices also increased demand for safe-haven Treasury securities. Read Why Did Treasuries Rally on Disappointing US GDP Data? to learn more.

Meanwhile, investment-grade bond yields fell last week. Foreign investors found US corporate bonds appealing despite lower yields due to negative yields in other major developed nations. To learn more, read Yield-Hungry Global Investors Flock to US High-Grade Bond Market.

Junk bonds

Junk bond yields rose 14 basis points week-over-week and ended at 6.8% on July 29, 2016. Due to a rise in yields, the price of mutual funds and ETFs investing in junk bonds like the American Funds American High-Income Trust – Class A (AHITX), the T. Rowe Price High Yield Fund – Advisor Class (PAHIX), the SPDR Barclays Capital High Yield Bond ETF (JNK), and the iShares iBoxx $ High Yield Corporate Bond Fund (HYG) fell in the week ending July 29.

In this series, we’ll look at the developments in the primary and secondary markets for high-yield debt and leveraged loans.

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