High yield did well across multiple sectors in the U.S., according to the BondBloxx Fixed Income Monthly Update for January.
High yield new issue activity was robust in the first month of the year. The asset class successfully priced the highest monthly volume since November 2021, as 42 bonds priced for total volume of $31.6 billion for the month as of January 31, according to J.P. Morgan. This represents double the historic monthly average.
The strength of the U.S. economy was underscored by economic data released in January. December payroll and unemployment data surprised to the upside, while GDP for the fourth quarter strongly exceeded expectations, according to BondBloxx.
An important update for the fixed income market: Market expectations for Fed rate cuts have been pushed out further to May or June in response to the robust U.S. economy.
As the year continues to unfold, high yield corporate fundamentals remain generally well-positioned, according to BondBloxx. Leverage ratios remain near prepandemic lows, and interest coverage ratios near multiyear highs.
Breaking Down U.S. High Yield Industry Sector Performance
Six of the seven U.S. high yield industry sectors generated positive returns in January. Total return performance was led by the more defensive energy industry, which gained 0.8% during the month. The segment is yielding 7.0% as of the end of January.
The only laggard during the month was the telecom, media and technology (TMT) industry, which was down 1.4% for the month. According to BondBloxx, issuers including DISH DBS, Level 3, Lumen Technologies, CSC Holdings, and Altice experienced weakness during the month, bringing the segment down. The TMT industry is yielding 9.4% as of the end of January.
Looking ahead, BondBloxx remains constructive on high yield industries that demonstrate strong fundamentals and resilience in the current economic climate. This includes core industrial, consumer cyclical, and energy.
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