Wall Street Webcasting Presents: Wells Fargo Securities: “The Weakness in High Yields Bleeds into Other Risk Assets.”
Wall Street Webcasting has prepared and provided for you an exclusive broadcast of Wells Fargo Securities own, Rich Gordon. Gordon is highly recognized for his weekly narrates regarding the fixed income strategy at Wells Fargo Securities (NYSE: WFC). This week, Gordon concentrates on the conflicting economic data and the tone in the risk markets.
There have been mixed results seen in the recent economic data. The personal consumption number was up .5% last month; however, income only rose by .3% in August, the second lowest increase since December of 2013. The ISM Manufacturing Index survey will be in on Wednesday. Wells Fargo economic analysts’ believe the number to come in slightly lower than last month, remaining around 58. They also predict an increase in the Nonfarm Payrolls report on Friday, being that only a mere 142,000 jobs were added last month.
Treasuries have seen inflows since the sell-off in early September. Flattening in the 5s/30s spread has progressed and is now slightly over 140 basis points. A longer-term chart of the curve shows that over the course of the last decade, it has been much flatter, and betting against it would most likely not be favorable. The 10-Year Treasury Yield has overturned and has now regained half of the early September sell-off.
The high yield market has led the way for lowering prices of risk assets, and has yet to hit bottom. The heavy new issuance calendar in credit in September created pressure in high yield and investment grade. High yield is generally over-sold and seems to suffer more. Most broad market stock indices have traded off in September. Losses are really starting to accrue in the higher beta markets. The Russell 2000 is down 5 1/2 % in September and emerging markets have lost almost 7 1/2 %. Investors are beginning to price the probability of an end to zero interest rate policy and a more disciplined monetary policy. This has a heavy influence on the expense of financial risk assets.
To hear a more in depth explanation of what the Wells Fargo analysts’ believe the Fed will do in order to influence the valuation of risk assets, please tune into the latest video.
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