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What are the latest secondary market trends in leveraged loans?
As leveraged loans pay interest on a floating rate basis, the continued low rates environment in 2014 has compelled investors to pull funds out of the asset class.
In the week ending October 24, leveraged loans issuance slumped by almost 90% week-on-week, to $0.7 billion.
High yield debt mutual funds recorded a net inflow of $1.7 billion in the week ending October 24.
Yields on high yield debt decreased by 24 basis points or 0.24% over the week ending October 24, to come in at 5.98%.
High profile names like Tesoro Logistics, Targa Resources, Constellation Brands, and Fresenius Medical Care may have whetted investor interest last week.
High yield debt markets saw $6 billion worth of new supply issued across 12 transactions in the week ending October 24.
Even bond market ETFs like the iShares Barclays Aggregate Bond Fund (AGG) and the Vanguard Total Bond Market ETF (BND) have gained as conservative investors turned to bonds in the face of market volatility.
In December 2008, when the U.S. economy entered its dreadful recessionary phase, the Federal Reserve (or Fed) reduced the federal funds rate to nearly zero in order to stimulate household and business spending and support economic recovery.
We’ve talked about the dual mandate and factors constraining the Federal Reserve from achieving this mandate. Let’s now assess how close the Fed has come to achieving its macroeconomic objectives.
In order to meet both these long-term objectives, the Fed needs to balance the effect of a monetary move on both inflation and changes in unemployment.
At its October Federal Open Market Committee (or FOMC) meeting, members observed continued improvement in major macroeconomic indicators in the U.S.
Three rounds of quantitative easing have increased the Fed’s balance sheet to an unprecedented $4.5 trillion on October 22, 2014. Now, the Fed is looking at normalize its balance sheet size.
We have had a preference for Japan for some time. Japanese stocks surged last Monday (up nearly 4%) and continued to build on those gains throughout the week.
The Fed held its seventh Federal Open Market Committee (or FOMC) meeting on October 28-29. The FOMC statement will release on Wednesday, October 29. The slew of positive data and earnings last week may tip the balance in favor of ending asset purchases.
Last week’s U.S. Department of the Treasury auction for one-month Treasury bills (or T-bills) was held on October 21. Treasury bills (MINT) worth $34 billion were auctioned, which was $1 billion more than the previous week. Despite the higher supply, the bid-to-cover ratio came in higher than the previous week, and market demand rose.
The U.S. Department of the Treasury held the weekly auction for three-month Treasury bills on October 20. Market demand, which consists of direct and indirect bids, rose to 26.9% of the competitive bids, compared to 24.8% at the previous week’s auction.
The U.S. Department of the Treasury auctioned Treasury bills (or T-bills) worth $88 billion in the week ending October 24. Although auction demand was higher in absolute terms, the bid-cover ratio dipped, and market demand was lower due to lower indirect bidding.
ETFs tracking broad-based stock market indices were up due to positive economic and earnings data. Secondary market flows into investment-grade bond mutual funds were positive for the 19th consecutive week.
Better U.S. economic data, along with upbeat corporate earnings, proved bullish for stocks in the week ending October 24. Treasury yields between two years and 30 years rose last week, the largest increase for five-year and seven-year Treasuries.
Last week, U.S. economic data covered a number of sectors, including housing, employment, manufacturing, and inflation. All three housing indicators released last week were positive, and initial jobless claims once again beat market expectations. The CPI for September came in at an annualized rate of ~1.7%, the fourth straight monthly decline.