CIO’s Perspective: 2017 Half-Time Leveraged Credit Review and Outlook

Posted on July 5, 2017

1st Half 2017 Review

During the first half of 2017, seemingly unwavering economic optimism and sustained accommodative monetary policy by many developed market central banks outside of the U.S. led to strong performance in the high yield market. This economic optimism, largely attributed to expected pro-growth policies from the new U.S. presidential administration, has continued largely unabated despite no significant new policies actually being implemented.

The impressive performance has occurred against a mixed backdrop, as the U.S. economy has improved since this time last year, albeit marginally, but renewed energy price volatility and increased geopolitical concerns continue to pose risks to the overall market. In addition, the U.S. Federal Reserve (the “Fed”) has continued on its rate normalization path, increasing rates two times in the first half of 2017; however, U.S. Treasury yields have been volatile this year, and after reaching over two and half year highs in mid-March, 10-year U.S. Treasury yields began to fall and actually declined over the first half of the year. Furthermore, the rally in high yield has occurred despite the negative technicals of sizable high yield fund outflows of approximately $9.5 billion and a robust supply of new issuance; though on a net basis new issuance is much lower, as repricing/refinancing continue to account for a majority of new issuance.

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