October 2023: Outlook and Implementation
► The high yield index posted -1.17% for the month, while the excess return was -0.93%. The Federal Reserve's commentary on interest rates, geopolitical volatility, mixed technicals, and some negative credit headlines stemming from third quarter earnings season were all drivers behind the negative return.
► Fundamentals also worsened for the month, with the default rate increasing through October to 2.32%, up from 1.76% in September. The upgrade-to-downgrade ratio by issuer was 0.9 as of October, with downgrades slightly outpacing upgrades. While distressed exchanges are helping to keep companies out of bankruptcy, distressed exchanges reduce recovery values.
► High yield reported another monthly outflow, with $8.1 billion leaving the asset class. Year-to-date outflows have now reached $21.8 billion. However, an abundance of rising stars drove high yield into a supply shortfall of $47.1 billion in October. Issuance slowed as 10 bonds priced totaling just $9.4 billion.
► The index spread widened 41 basis points in October to +437, while the index yield-to-worst finished at 9.49%, higher by 0.61%, after finishing September at 8.88%. The average index price dropped to $86.48 – $1.60 points from $88.08.