US stock indexes rose
The three US equity indexes that we review in this weekly series rose from May 17 to May 24, 2016, after upbeat new home sales data boosted investors’ sentiments about US economic recovery. The Federal Open Market Committee (or FOMC) minutes indicated the possibility of a rate hike in June if economic data supports it.
New home sales rose 16.6% in April 2016 to a seasonally adjusted rate of 619,000 units, the highest level since January 2008. Housing stocks such as Toll Brothers (TOL), D.R. Horton (DHI) and Lennar Corporation (LEN) rallied.
The equity market also saw support after Greece passed an omnibus reform bill providing tax hikes, more austerity reforms, and a new privatization superfund that would cause almost all state property to comply with its bailout program.
Thus, European leaders approved a loan of 10.3 billion euros ($11.5 billion) to Greece. The amount will be given in two installments by October 2016.
From May 17 to May 24, the Vanguard 500 Index Fund Investor Class (VFINX) and the SPDR S&P 500 ETF (SPY) rose by 1.4% each. The Dow Jones Industrial Average (DJIA) rose by 1.0%, and the NASDAQ rose by 3.1%.
High-grade bond market
Treasury yields rose across the yield curve as the minutes of the Federal Reserve’s April 2016 meeting raised the probability of a rate hike at its June meeting.
Investment-grade bond yields, which take cues from the Treasury markets, also jumped last week due to the hawkish tone of the minutes as well as the comments made by Fed officials.
Junk bond yields fell by five basis points week-over-week and ended at 7.7% on May 20, 2016. Due to a fall in yields, the prices of mutual funds and ETFs that invest in junk bonds, including 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 ETF (HYG), rose in the week ended May 20.
This series will cover the developments in the primary and secondary markets for high-yield debt and leveraged loans. We’ll begin by discussing developments in the high yield primary market issuance.