Junk Bond Issuers Return to Primary Market Last Week (Part 1 of 6)
Equity market activity
US equity indices rose 1.7% in the week to April 10 along with the S&P 500 index, tracked by the SPDR S&P 500 ETF (SPY) and the iShares Core S&P 500 ETF (IVV). The Dow Jones Industrial Average (or DJIA), tracked by the SPDR Dow Jones Industrial Average ETF (DIA), also moved up 1.7%. However, the NASDAQ Composite outpaced both these indices by rising 2.2% in the period.
The U.S. Federal Reserve’s March 2015 meeting minutes were the primary market movers. Equity indices rose after the minutes were released on April 8, given the uncertainty about the much anticipated rate hike in June.
The earnings season kicked off in the United States with the release of Alcoa’s (AA) results. The company, which announced its results after market hours on April 8, saw its shares fall by 3.4% the next day.
Shares of Bed Bath & Beyond Inc. (BBBY) fell 5.4% after the company announced its 1Q15 earnings. With the Fed’s important announcements out of the way, equities will look to corporate earnings to direct movements in the coming weeks.
A rise in crude oil prices, which helped shares of Anadarko Petroleum Corporation (APC) and Halliburton Company (HAL) go up 6.6% and 5.2% week-over-week, respectively, also helped equities rise.
Treasury yields rise
U.S. Treasury yields also rose after the Federal Reserve meeting minutes were released. With most policymakers still calling for a hike in June, participants moved away from Treasuries. Weak auctions of bonds and notes last week also pushed yields up. Consequently, prices of Treasury-focused ETFs fell. The iShares 20+ Year Treasury Bond (TLT) fell 0.8% in the week, while the iShares 7-10 Year Treasury Bond (IEF) fell 0.3%.
Volatility fell in the week. The iPath S&P 500 VIX Short Term Futures ETN (VXX), which tracks volatility, fell 11.7% for the week after falling 2.6% the previous week.
Junk bonds
Although yields on Treasuries and investment-grade bonds rose, yields for junk bonds fell sharply in the week. As a result, related ETFs such as the SPDR Barclays Capital High Yield Bond ETF (JNK) and the iShares iBoxx $ High Yield Corporate Bond Fund (HYG) rose in the week ended April 10.
This series will cover the developments in the primary and secondary markets for high-yield debt and leveraged loans.
Continue to Part 2
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