Earlier on Thursday, Lipper was out with the latest read on HY flows. U.S. high yield funds saw inflows of $967m for the week ended October 11, Lipper said. That compares to inflows of $645m the previous week and marks the fourth consecutive week of inflows.
HY has been interesting this year. While spreads are still near post-crisis tights, HY has looked shakier than IG since March, which for some suggests the cracks are starting to show, even if those cracks are tiny and not necessarily a precursor to something more dramatic. “After a two-week pause in September, the IG/HY decompression theme has come back into play,” Goldman wrote earlier this month, adding that “although the continued sequential improvement in aggregate HY credit metrics is reassuring, the greater exposure of the HY market to fundamentally and secularly challenged sectors and issuers put it at a disadvantage vs. IG.”
With that as the brief intro, consider this chart from Goldman:
As the bank notes, “the 3s/5s curve has flattened by ~45bp from 130bp to 85bp” in the last six months. It has only been flatter in only 20% of the trading sessions since the crisis.
Is that, as the header on the chart suggests, a “sign of trouble?” Maybe, maybe not. As Goldman goes on to write, this can be largely explained by idiosyncratic factors, but “could also include higher risk aversion heading into the end of the year and/or apathy toward secularly disrupted credits that remain challenged deep into the current cycle.”
But you know, “tomato, tomahto.” Goldman says “sign of trouble,” the vol. selling, ex-Home Depot manager next door says “buy more HYG.”