The Bear Stearns High-Yield Index was more than 50 basis points tighter last week as its yield shrank to 7 3/4% and its average spread over the Treasury curve narrowed to 440bps. The lack of new issuance was the biggest driver of tighter spreads, said Michael Taylor, high-yield strategist at Bear Stearns in New York. “As new issue supply dwindles away, focus shifts toward the secondary market,” he explained, adding with $81 billion in supply to-date, this year’s pace is currently ahead of last year’s.
Taylor highlighted the cable, telecom and energy sectors as areas which are driving the market tighter. “Cable is an area with a lot of high-beta bonds, which do well when the index is bid higher,” he said, noting cable has outperformed the index by an average of 250bps for the month and big-cap names such as Qwest Communications International and Charter Communications are outperforming. The utility sector has also outperformed the index, by 150bps this month.
