High Yield

• Yield 1.404% vs. Exp. 1.419%
• Bid-to-cover 3.33 vs. Avg. 2.82 (Prev. 2.76)
• Indirects 68.5% vs. Avg. 52.77% (Prev. 48.97%)
• Indirect bid-to-cover: 1.39
• Alloted High 38.42%

• Yields 3.141%% vs. Exp. 3.120%
• Bid-To-Cover 2.65 vs. Avg. 2.65 (Prev. 2.79)
• Indirects 59.3% vs. Avg. 57.17% (Prev. 61.72%)
• Indirect Bid-To-Cover 1.20
• Allotted high 46.79%

• Yields 2.388% vs. Exp. 2.381%
• Bid-To-Cover 2.63 vs. Avg. 2.35 (Prev. 2.4)
• Indirects 54.8% vs. Avg. 48.97% (Prev. 44.72%)
• Indirect Bid-To-Cover 1.29
• Allotted at high 2.81%

• Yields 1.020% vs. Exp. 1.051%
• Bid-To-Cover 3.63 vs. Avg. 2.96 (Prev. 3.23)
• Indirects 44.5% vs. Avg. 50.2% (Prev. 45.18%)
• Indirect Bid-To-Cover 2.1
• Allotted at high 3.21%

• Yields 0.769% vs. Exp. 0.939%
• Bid-To-Cover 3.10 vs. Prev. 1.81
• Indirects 47.8% vs. Prev. 23.73%
• Indirect Bid-To-Cover 1.53x
• Allotted at high 38.26%

The Merrill Lynch High Yield Master II Index, often used when assessing the state of the broad High Yield market, suggests that Junk bonds have returned a whooping 51% year-to-date, thereby outperforming the SPX by a cool 29%. I am notoriously skeptical about indices (reasons include geometric returns versus dollar weighted returns, index inclusion/exclusion problem, changes in share of CCC rated paper, etc). Looking at High Yield mutual fund indices only partly solves such issues as these indices have their own flaws but f.i. Lipper's HY index ytd return was in the low 40's and thereby almost 10 percentage points (so actually 20%) lower than the Master II's.

The place where the real big boys play, high yield cash bonds and CDS in IG, has seen unprecedented activity over the past year. Overall, more than $1 trillion in corporate issues were sold in 2009, although in fairness $192 billion of this amount is courtesy of taxpayer subsidized TLGP sponsored financial issuance (Mr. Blankfein, speaking of transparency, when do you plan on paying back your portion of TLGP debt?). Yet real speculative mania has never been as evident as what has transpired in the junk bond domain: YTD more than $103 billion of BB- and below rater paper has been issued, compared to just $48.8 billion for all of 2008.

• Yields 4.009% vs. Exp. 3.994%
• Bid To Cover 2.37 vs. Avg. 2.59 (Prev. 2.92)
• Indirects 34.5% vs. Avg. 48.03% (Prev. 46.7%)
• Indirect Bid To Cover: 1.51
• Allotted at high 27.53%
• 8.5% of accepted to directs

• Yields 1.445% vs. Exp. 1.441%
• Bid-To-Cover 2.76 vs. Avg. 2.80 (Prev. 3.02)
• Indirect Bid-To-Cover 1.34
• Indirects 49.1% vs. Avg. 50.45% (Prev. 54.23%)
• Allotted at high 61.96%
• Direct bidders at a sturdy 11%: money market guarantee expiration? Do directs prefer Treasuries over equities?

There is no better representation of the ongoing irrational exuberance in capital markets than what has been happening with HY bond issuance. And the number indicates that many fixed income fund managers are staring at a lot of pain in the future: YTD there has been $100 billion issued in HY bonds, more than double the $49 billion issued in all of 2008. The biggest losers in all of this: restructuring shops who have been hiring senior bankers left and right to prepare for an onslaught of bankruptcies. Alas, with the majority of 5x+ leveraged dinosaurs extending maturities yet again compliments of "money that just has to be put to work" expect bankruptcies to be indefinitely delayed once more, never mind that the deteriorating underlying businesses generate less cashflow than ever and actual bond recoveries, when the inevitable bankruptcies finally do come, will be worse than single digits.

• Yields 3.005% vs. Exp. 3.047%
• Bid-To-Cover 2.79 vs. Avg. 2.55 (Prev. 2.74)
• Indirects 61.7% vs. Avg. 51.44% (Prev. 61.3%)
• Indirect Bid-To-Cover: 1.29x
• Direct accepted: 6.3% of Total accepted
• Allotted at high 30.22%

• Yields 2.470% vs. Exp. 2.4625
• Bid-To-Cover 2.40 vs. Avg. 2.31 (Prev. 2.51)
• Indirect 44.8% vs. Avg. 46.20% (Prev. 56.3%)
• Indirect Bid-To-Cover: 1.26
• Allotted at high 39.82%, compared to 16.55% a month ago.
• Direct bidders increased to 11% compared to ~4% pre money market guarantee expiration (per Santelli): new capital flow?

• Yields 1.034% vs. Exp. 1.0296%
• Bid-to-cover 3.23 vs. Avg. 2.85 (Prev. 2.68)
• Indireect 45.2% vs. Avg. 46.9% (Prev. 49.5%) 
• Allotted at high 27.16%

A surprisingly robust auction, indicating that demand for US Treasuries despite a continuing supply onslaught, will not taper off. Is this merely more rotation out of agencies and MBS? Whether this demand is coming from foreign purchasers or has domestic sources is, at this point, unclear.

• Yields 4.238% vs. Exp. 4.289%
• Bid-To-Cover 2.92 vs. Avg. 2.48 (Prev. 2.36)
• Indirect 46.5% vs. Avg. 48.46% (Prev. 50%)
• Allotted at high 85.35% (BBG)

• Yield 2.494% vs. Exp. 2.509%
  
• Bid-to-cover 2.51 vs. Avg. 2.21 (Prev. 1.92)
• Indirects 56.4% vs. Avg 34.6% (Prev 37%)
• Indirect bid-to-cover 1.31x
• Allotted at high 16.55% (BBG)