May 8 - May 21, 2020
- Economic data still dire, though signs of gradual improvement from March/April lows
- Leveraged credit markets generated strong returns as progress on reopening the economy overshadowed negative news regarding the current economic situation
- Oil prices rallied in face of declining supply and modest improvements in demand
- Flows and new issuance strong for high yield bonds, less encouraging for bank loans
- We briefly discuss how a surge in fallen angels can alter the composition and risks of high yield market
A clearer picture of the dire unemployment situation in the U.S. emerged on May 8th when the Department of Labor reported that U.S. payrolls decreased by 20.5 million workers in April, causing the unemployment rate to surge to 14.7% from 4.4% as reported as of the end of March. Both the number of monthly job losses together with the unemployment rate reflected levels not seen since the Great Depression; however, both metrics came in slightly below the forecasts provided by most economists. Unsurprisingly, the Leisure and Hospitality sectors accounted for over one-third of the total number of job losses, as the COVID-19 pandemic has significantly disrupted travel on a worldwide basis. Additionally, initial unemployment claims reported on May 14th and 21st came in with 3 million and 2.4 million first time filers, respectively, bringing the nine-week cumulative total to almost 39 million initial filers. While initial claims remain elevated, the silver lining is that such claims have at least declined for seven straight weeks.