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1

MONTHLY PROFILES | July 5, 2018

HIGH YIELD INDICES Phil Galdi, Head of Indices

ICE Data Services │ ICE Data Indices

Preston Peacock, Senior Research Data Analyst

ICE Data Services │ ICE Data Indices

ICE Index Hotline: New York: +1 212-497-3008 London: +44 (0) 20-7429-7128 Email: [email protected]

High Yield back in the red, but holds up better than most others

The Global High Yield Index suffered its fifth loss in the last six months and yet, with an average loss of about

half a percent in the four prior setbacks, this month’s 0.10% loss can almost be viewed as a positive outcome.

That view is reinforced when the high yield index is compared to other flagship global bond indices, including

IG corporates, global governments, and Emerging Markets.

Short maturity HY has better risk adjusted returns

The 0-5 year segments of the U.S. and Euro indices have better Sharpe and Information ratios than their 5-10

year counterparts. One can argue that the results will differ depending on what historical period is being

measured, and that is true. However, given the interest rate environment the last 5 years probably gives a

better indication of what may lay ahead than would history prior to 2013. One interesting observation ‒ and

something that certainly contributes to the relative risk adjusted results ‒ is the fact that the 0-5 year maturity

buckets have generated higher income returns over the last 5 years than the 5-10 year maturity buckets.

ATD continues to drag Autos lower

Few sectors lagged risk-matched Treasuries in June but the worst, by far, was Automotive & Auto Parts

(-1.00%), which is also the worst-performing sector YTD by a growing margin (-4.93% excess return). The

culprit continues to be American Tire Distributors (ATD -51%) as a second major manufacturer (Bridgestone)

announced it would no longer use ATD as a distributor.

Exhibit A: One month total return % (USD terms)

-3.00

-2.50

-2.00

-1.50

-1.00

-0.50

0.00

Global HY EM ExternalCredit

DM LocalSovereign

Global IGCorp

EM ExternalSovereign

EM LocalCredit

EM LocalSovereign

mailto:[email protected]


2

Global High Yield

High yield was back in the red, but held up better than most other indices.

The Global High Yield Index suffered its fifth loss in the last six months and yet, with an average loss of about

half a percent in the four prior setbacks, this month’s 0.10% loss can almost be viewed as a positive outcome.

That view is reinforced when the high yield index is compared to other flagship global bond indices, including

IG corporates, global governments, and Emerging Markets (Chart 1). Of course, the Global High Yield Index

has almost a 1% loss for H1 (in local currency terms) but that is less than half the 2.15% H1 loss posted by the

Global IG Corporate Index.

Less rate exposure gave HY an advantage over IG in the U.S., but the

opposite was true in Europe.

Are lower rated credits really outperforming this year or does this have more to do with the different interest rate

exposures of the IG and HY indices? With a 6.48 year duration the IG corporate index has significantly more

interest rate exposure than the high yield index (4.11 years). And with the Treasury curve shifting 38bp higher

that would seem to give the high yield index a big advantage. But the high yield index has a larger USD

allocation (15% more than IG corporates) and a lower allocation to EUR (8% less than IG corporates). And a

17bp YTD rally in the Bund curve has helped offset the USD curve losses. As a result, the HY and IG corporate

indices have very similar curve factor returns for H1 (-1.59% for HY and -1.66% for IG).

A low spread duration has helped mute high yield spread widening losses.

High yield incurred a substantial spread widening loss in June (-0.42%) but once again it was the Global IG

Corporate Index that fared worse (-0.48%). Given the weak credit environment that sounds counterintuitive

and, in fact, the high yield index spread widened almost twice as much as IG (+9bp vs +5bp). But with 1.37

years less spread duration exposure the impact of the high yield spread movement was muted relative to IG.

Exhibit B: Global High Yield Index (HW00) monthly return attribution

0.50%

0.01%

-0.08%

-0.12%

-0.42%

0.01%

-0.10%

-0.09%

-0.60% -0.40% -0.20% 0.00% 0.20% 0.40% 0.60%

Coupon

Amort./Roll

Curve Shift

Curve Reshape

Spread Change

Volatility Change

Total Return

Excess Return


3

Over the last five years, the 0-5 year maturity bucket has outperformed the

5-10 year maturity bucket on a risk adjusted basis.

Traditionally, unlike investment grade indices, maturity sub-indices have not been part of the standard offering

for high yield index families. However, with rate and spread duration exposure playing an important role in

recent high yield index performance it begs the question of whether or not that view should be reconsidered,

particularly in light of the current interest rate environment. To help answer that question we segmented the

U.S. and Euro high yield indices across 0-5 year, 5-10 year and 10+ year maturity buckets and analyzed the

risk adjusted performance of each over the last 5 years. The 10+ year segments represent a very small portion

of both indices (6% and 2% average weight, respectively, for U.S. and Euro) so we ignored that segment for

purposes of the comparison.

The results show that the 0-5 year segments of the indices have better Sharpe and Information ratios than their

5-10 year counterparts. One can argue that the results will differ depending on what historical period is being

measured, and that is true. However, given the interest rate environment the last 5 years probably gives a

better indication of what may lay ahead than would history prior to 2013. One interesting observation ‒ and

something that certainly contributes to the relative risk adjusted results ‒ is the fact that the 0-5 year maturity

buckets have generated higher income returns over the last 5 years than the 5-10 year maturity buckets.

Exhibit C: High Yield risk adjusted performance by maturity (last 5 years)

0-5yr 5-10yr 10+yr All

US HY (H0A0)

Sharpe Ratio 1.24 0.95 1.09 0.75

Information Ratio 0.99 0.60 0.83 0.83

Avg Weight 36.7% 57.1% 6.1% 100%

Total Return 5.29% 5.16% 9.83% 5.51%

Income Return 7.03% 6.53% 7.26% 6.76%

Euro HY (HE00)

Sharpe Ratio 1.35 1.33 1.31 1.33

Information Ratio 1.19 0.92 0.65 0.65

Average Weight 58.9% 38.6% 2.1% 100%

Total Return 4.59% 7.10% 10.93% 5.57%

Income Return 5.26% 5.19% 5.29% 5.22%


4

Performance

After the prior month’s sizable widening, the index spread continued to

move higher in June to end Q2 at 399bp – a dramatic increase from the

311bp 10-year low set in January.

Chart 1: Global High Yield Index (HW00) spread performance

Once again, European currency high yield saw the worst widening (EUR

+11bp, GBP +12bp), though this time by a smaller margin compared to the

USD segment (+8bp).

Chart 2: Global High Yield Index spread by currency

-18

11

-31

-16

9

-2

-35

17

29

-18

36

9

200

250

300

350

400

450

-40

-30

-20

-10

0

10

20

30

40

Spread Change (LHS) OAS (RHS)

200

250

300

350

400

450

500

06/2

017

07/2

017

08/2

017

09/2

017

10/2

017

11/2

017

12/2

017

01/2

018

02/2

018

03/2

018

04/2

018

05/2

018

06/2

018

USD EUR GBP CAD


5

Table 1: Global High Yield Index return attribution by segment Cpn Amort./ Curve Curve Spread Vol Total Excess

Roll Shift Reshape Change Return Return Return Month Global High Yield 0.50% 0.01% -0.08% -0.12% -0.42% 0.01% -0.10% -0.09% US High Yield Master II 0.53% 0.00% -0.09% -0.14% 0.04% 0.00% 0.35% 0.35% US High Yield (Cash Pay) 0.53% 0.00% -0.09% -0.14% 0.05% 0.00% 0.35% 0.36% European Currencies 0.37% -0.04% 0.00% -0.04% -0.72% 0.04% -0.39% -0.36% Euro High Yield 0.34% -0.03% 0.03% -0.03% -0.76% -0.01% -0.45% -0.46% Sterling High Yield 0.54% -0.08% -0.18% -0.13% -0.48% 0.30% -0.03% 0.23% European Issuers 0.43% -0.02% -0.04% -0.08% -0.62% 0.03% -0.30% -0.27% Canadian High Yield 0.48% -0.02% 0.21% 0.01% -0.53% 0.00% 0.16% -0.19% Canadian Issuers 0.53% 0.00% -0.06% -0.12% -0.18% 0.00% 0.17% 0.14% YTD Global High Yield 2.84% -0.08% -1.07% -0.52% -2.20% 0.03% -0.98% -0.49% US High Yield Master II 3.06% -0.03% -1.43% -0.61% -0.95% 0.03% 0.08% 0.81% US High Yield (Cash Pay) 3.05% -0.03% -1.44% -0.61% -0.95% 0.03% 0.06% 0.80% European Currencies 2.14% -0.37% 0.50% -0.26% -3.46% 0.04% -1.40% -1.85% Euro High Yield 1.96% -0.34% 0.63% -0.22% -3.72% -0.01% -1.68% -2.25% Sterling High Yield 3.16% -0.54% -0.25% -0.45% -1.94% 0.29% 0.26% 0.47% European Issuers 2.47% -0.29% -0.34% -0.38% -3.56% 0.03% -2.06% -1.96% Canadian High Yield 2.80% -0.08% -0.16% -0.46% -0.33% 0.00% 1.78% 1.35% Canadian Issuers 3.11% -0.03% -1.38% -0.58% -0.98% 0.02% 0.16% 0.85%


6

Composition

Chart 3: HW00 % weight by currency Chart 5: HW00 % weight by currency MOM change

Chart 4: HW00 % weight by rating Chart 6: HW00 % weight by rating MOM change

81.0

16.2

2.4 0.4

USD

EUR

GBP

CAD

-0.4 -0.2 0.0 0.2 0.4 0.6

USD

EUR

GBP

CAD

54.5

36.5

9.0

BB

B

CCC/lower

-0.6 -0.4 -0.2 0.0 0.2 0.4 0.6

BB

B

CCC/lower


7

Table 2: Global High Yield Index sector weights 6/30/2018 1-Month Change Europe EUR Europe EUR Global USD Issuers /GBP EUR GBP CAD Global USD Issuers /GBP EUR GBP CAD Automotive 2.43 1.76 5.72 6.77 7.08 4.62 0.00 -0.03 -0.01 0.08 0.04 -0.06 0.45 0.00 Banking 8.59 3.16 21.39 12.01 13.01 5.15 0.00 -0.34 -0.03 -0.66 -1.21 -0.16 -8.36 0.00 Basic Industry 11.87 11.53 11.00 11.81 13.34 1.41 13.39 -0.17 -0.27 -1.07 -0.25 -0.47 0.15 0.06 Capital Goods 4.73 5.29 4.30 6.45 7.10 1.98 1.53 0.03 -0.03 0.13 0.18 0.11 0.18 -0.03 Consumer Goods 3.19 2.84 2.32 2.60 2.65 2.27 0.00 0.09 0.10 0.43 0.19 0.06 0.93 0.00 Energy 13.56 15.56 4.40 3.23 3.01 4.69 43.22 -0.07 0.03 0.18 -0.04 -0.07 0.30 0.17 Financial Services 4.47 3.90 4.13 4.86 4.11 9.92 0.00 0.61 -0.20 -0.23 1.34 1.48 0.97 0.00 Healthcare 8.23 10.44 1.20 5.48 6.10 1.27 0.00 0.23 0.22 0.02 0.15 0.09 0.13 0.00 Insurance 1.09 1.05 1.75 2.04 1.78 3.80 0.00 0.01 0.01 0.04 0.03 0.01 0.35 0.00 Leisure 3.73 4.65 2.01 3.54 2.99 7.28 4.70 0.24 0.34 0.04 0.11 0.06 0.76 0.04 Media 8.37 11.07 11.73 7.93 6.72 16.15 16.42 0.08 0.01 0.43 0.19 0.09 1.57 -0.38 Real Estate 3.65 0.94 1.46 1.81 1.98 0.67 0.00 0.07 0.00 0.09 0.04 0.02 0.07 0.00 Retail 4.37 4.25 5.70 8.03 5.91 22.51 11.58 0.04 0.01 0.18 0.24 0.07 2.66 0.11 Services 4.50 5.49 3.79 5.40 5.72 3.19 5.34 0.02 -0.02 0.01 0.14 -0.02 0.88 0.05 Technology & Electronics 3.92 5.72 2.36 1.65 1.64 1.76 0.00 0.06 -0.03 0.26 0.30 0.32 0.17 0.00 Telecommunications 8.45 9.03 11.40 11.09 11.71 6.87 0.00 -0.85 -0.12 -0.05 -1.50 -1.56 -1.53 0.00 Transportation 1.64 0.90 2.65 2.06 2.04 2.19 2.08 -0.02 -0.02 0.06 0.02 -0.02 0.24 0.02 Utility 3.21 2.43 2.68 3.24 3.09 4.28 1.74 0.00 0.03 0.04 0.04 0.06 0.07 -0.04


8

US High Yield Performance

Spreads were relatively flat (+0.04% spread change return) but 0.31% in

incremental coupon income gave the index a 0.35% excess return.

Chart 7: US High Yield Index (H0A0) monthly return attribution

The index spread tightened 2bp, which is negligible, but noteworthy given

global credit market climate in June.

Chart 8: US High Yield Index (H0A0) spread performance

0.53%

0.00%

-0.09%

-0.14%

0.04%

0.00%

0.35%

0.35%

-0.30% -0.20% -0.10% 0.00% 0.10% 0.20% 0.30% 0.40% 0.50% 0.60%

Coupon

Amort./Roll

Curve Shift

Curve Reshape

Spread Change

Volatility Change

Total Return

Excess Return

-21

20

-32

-11

6

-3

-37

17

31

-28

16

-2

300

310

320

330

340

350

360

370

380

390

-50

-40

-30

-20

-10

0

10

20

30

40



9

Sector & Issuer Performance

Super Retail was the clear winner in the sector rankings (+1.61% excess return) as it rebounded from the prior

month when it landed at the other end of the rankings. And, once again, it was PetSmart (PETM +28%) that

was the key performance driver. PetSmart hired advisers to help it manage its sizable debt burden. Few

sectors lagged risk-matched Treasuries in June but the worst, by far, was Automotive & Auto Parts (-1.00%),

which is also the worst-performing sector YTD by a growing margin (-4.93% excess return). The culprit

continues to be American Tire Distributors (ATD -51%) as a second major manufacturer (Bridgestone)

announced it would no longer use ATD as a distributor.

Table 3: US High Yield Index sector performance Total return Excess return

Sector Ticker %weight Month YTD Month YTD US High Yield Index H0A0 100.0 0.35 0.08 0.35 0.81 By rating

BB H0A1 46.2 0.02 -1.77 0.03 -0.87 B H0A2 41.4 0.46 1.05 0.47 1.69 CCC & Lower H0A3 12.4 1.25 3.96 1.25 4.36 By sector

Energy H0EN 15.6 0.63 1.39 0.64 2.25 Healthcare H0HL 10.4 0.44 1.86 0.45 2.58 Telecom H0TC 9.0 0.58 2.44 0.58 3.27 Cable & Satellite TV H0CV 6.6 0.47 -1.73 0.49 -0.87 Technology H0TY 5.7 0.23 -0.13 0.22 0.23 Services H0SE 5.1 0.22 -1.49 0.24 -0.81 Div. Financial Services H0FI 3.9 0.11 0.95 0.11 1.42 Metals & Mining H0ME 3.6 -0.17 -1.32 -0.16 -0.41 Homebuilders & Real Estate H0HB 3.3 0.16 -1.78 0.17 -1.06 Banks & Thrifts H0BA 3.2 -0.08 -4.10 -0.07 -2.81 Chemicals H0CH 2.8 0.29 0.09 0.29 0.76 Gaming H0AG 2.8 0.04 -1.29 0.05 -0.64 Containers H0CT 2.7 0.14 -1.73 0.15 -1.16 Broadcasting H0BR 2.6 0.27 0.00 0.29 0.71 Super Retail H0SR 2.5 1.60 1.00 1.61 1.71 Utilities H0EL 2.4 0.02 0.42 0.02 1.15 Automotive & Auto Parts H0AU 1.8 -1.01 -5.68 -1.00 -4.93 Food, Beverage & Tobacco H0FO 1.6 0.08 -2.02 0.11 -1.02 Building Materials H0BL 1.5 0.26 -1.53 0.27 -0.93 Diversified Media H0AE 1.5 0.37 3.14 0.37 3.70 Consumer Products H0CO 1.3 0.24 -0.65 0.25 0.00 Diversified Media H0DM 1.2 0.28 1.34 0.26 1.56 Capital Goods H0CA 1.1 0.46 -0.48 0.47 0.05 Restaurants H0RE 1.1 0.33 -1.90 0.36 -0.95 Insurance H0IN 1.0 0.59 0.58 0.61 1.29 Hotels H0AH 0.9 0.39 -1.45 0.43 -0.70 Steel H0ST 0.8 0.06 -1.17 0.05 -0.43 Food & Drug Retail H0FR 0.7 0.84 5.35 0.84 6.27 Publishing & Printing H0PU 0.7 -0.36 0.35 -0.35 0.92 Leisure H0LE 0.6 0.91 -0.52 0.94 0.25 Transport Ex Air/Rail H0SH 0.5 0.62 2.02 0.61 2.48 Paper H0PA 0.4 0.39 -0.66 0.40 -0.02 Environmental H0EV 0.4 0.12 -0.20 0.10 -0.06 Entertainment & Film H0ET 0.3 0.60 0.62 0.63 1.25 Air Transportation H0AI 0.3 0.00 0.49 -0.04 0.67 Railroad H0RA 0.0 -0.21 1.27 -0.24 1.19


10

Beleaguered coal miner Murray Energy (MURREN +40% excess return) was the best-performing name after debt holders agreed to refinance some of the company’s bonds and loans. The next-best name was retailer PetSmart (PETM +28%), which announced it had hired advisers to look into a potential restructuring. The biggest name at the top of the rankings was pharma company Endo (ENDP +10%), which announced a liability settlement agreement. The worst-performer in the index was American Tire Distributors (ATD -51%), which lost half its remaining value after a second major manufacturer removed its product from the company’s network. Almost as bad was next-worst Petroquest (PQUE -40%), which continues to struggle with its debt burden.

Table 4: US High Yield Index issuer returns Ticker %weight Avg. Rating OAS OAS chg Total return% Excess return% 10 Best MURREN 0.037 CCC2 3,293 -1632 39.69 39.64 PETM 0.174 CCC2 1,228 -568 27.92 27.94 BBBB 0.019 CCC3 1,870 -623 18.53 18.52 UPL 0.063 B1 1,225 -332 13.74 13.76 PFCB 0.021 CCC3 1,251 -490 9.72 9.67 ENDP 0.313 CCC1 751 -207 9.23 9.27 CSVCAC 0.033 B3 903 -122 6.76 6.79 SPLLOG 0.030 CCC1 1,524 -300 6.75 6.72 RCII 0.041 CCC1 293 -275 6.59 6.60 AMAG 0.039 B1 279 -210 6.22 6.26 10 Worst ATD 0.043 CCC3 7,194 3846 -50.71 -50.73 PQUE 0.017 CCC2 4,573 2661 -40.26 -40.28 SHLD 0.022 C 6,810 2641 -20.90 -21.01 ACOSTA 0.039 CCC3 2,652 630 -15.73 -15.72 WLBA 0.009 CC 6,660 825 -9.04 -9.10 OMI 0.041 BB3 457 141 -7.33 -7.29 MONINT 0.033 CCC2 3,659 731 -7.30 -7.37 NMG 0.093 CC 2,094 300 -5.98 -5.98 ENLK 0.030 BB2 498 65 -5.62 -5.56 TNETBB 0.079 BB3 391 96 -5.61 -5.60


11

Despite following completely different paths over the course of the month,

Treasuries, equities and high yield all ended with modest positive returns.

Chart 9: US High Yield vs. Equities and Treasuries

The lower quality segments outperformed during June (BBs +3bp, Bs -6bp,

CCCs -17bp). However, the rebalancing shifted all rating groups wider,

leaving only the B-rated group tighter MOM (-1bp).

Chart 10: US High Yield Index option-adjusted spreads vs. Treasuries

97.00

98.00

99.00

100.00

101.00

102.00

103.00

104.00

05/3

106

/01

06/0

206

/03

06/0

406

/05

06/0

606

/07

06/0

806

/09

06/1

006

/11

06/1

206

/13

06/1

406

/15

06/1

606

/17

06/1

806

/19

06/2

006

/21

06/2

206

/23

06/2

406

/25

06/2

606

/27

06/2

806

/29

06/3

0

US High Yield S&P 500 US Treasuries

500

550

600

650

700

750

800

850

900

950

100

150

200

250

300

350

400

450

6/30

/201

7

7/31

/201

7

8/31

/201

7

9/30

/201

7

10/3

1/20

17

11/3

0/20

17

12/3

1/20

17

1/31

/201

8

2/28

/201

8

3/31

/201

8

4/30

/201

8

5/31

/201

8

6/30

/201

8

US High Yield Index BB B CCC (RHS)


12

Composition

Chart 11: H0A0 % weight by rating Chart 12: H0A0 % weight by rating MOM change

Chart 13: H0A0 % weight by sector Chart 14: H0A0 % weight by sector MOM Change

46.2

41.4

12.4

BB

B

CCC/lower

-1.0 -0.5 0.0 0.5 1.0

BB

B

CCC/lower

0.0 5.0 10.0 15.0 20.0

Energy

Basic Industry

Media

Healthcare

Telecommunications

Technology & Electronics

Services

Capital Goods

Leisure

Retail

Financial Services

Banking

Consumer Goods

Utility

Automotive

Insurance

Real Estate

Transportation

-0.3 -0.2 -0.1 0.0 0.1 0.2 0.3 0.4

Energy

Basic Industry

Media

Healthcare

Telecommunications


Services

Capital Goods

Leisure

Retail

Financial Services

Banking

Consumer Goods

Utility

Automotive

Insurance

Real Estate

Transportation


13

European High Yield Indices

Spread widening cost the index 0.72%, but at least the yield curve did not

add much more red ink (-0.04%).

Chart 15: European Currency High Yield Index (HP00) monthly return attribution

The index’s 12bp widening was an improvement over the prior month’s rout

but continues the upward trend begun at the start of 2018. The 399bp

ending spread is the highest it has been since late 2016.

Chart 16: European Currency High Yield Index (HP00) spread performance

0.37%

-0.04%

0.00%

-0.04%

-0.72%

0.04%

-0.39%

-0.36%

-1.00% -0.80% -0.60% -0.40% -0.20% 0.00% 0.20% 0.40% 0.60%

Coupon

Amort./Roll

Curve Shift

Curve Reshape

Spread Change

Volatility Change

Total Return

Excess Return

-18

5

-19-29

24

1

-27

23 21

-17

60

12

200

250

300

350

400

450

-40-30-20-10

010203040506070



14

Table 5: European High Yield Index returns Currency Return Unhedged Currency Return Hedged

Ticker Local Return

Excess Return

EUR GBP USD JPY EUR GBP USD JPY

Month

European Currencies HP00 -0.39 -0.36 -0.50 0.30 -0.48 1.46 -0.40 -0.32 -0.16 -0.38 Euro Currencies HE00 -0.45 -0.46 -0.45 0.36 -0.43 1.52 -0.45 -0.37 -0.21 -0.43 Sterling HL00 -0.03 0.23 -0.84 -0.03 -0.81 1.12 -0.12 -0.03 0.13 -0.09 European Issuers HWP0 -0.30 -0.27 -0.39 0.42 -0.37 1.58 -0.40 -0.32 -0.16 -0.38 European Currencies Constrained HPC0 -0.39 -0.36 -0.50 0.31 -0.48 1.47 -0.40 -0.32 -0.15 -0.38 Euro Constrained HEC0 -0.44 -0.45 -0.44 0.36 -0.42 1.52 -0.44 -0.36 -0.20 -0.43 European Issuer Constrained HQ0C -0.29 -0.26 -0.38 0.43 -0.36 1.59 -0.40 -0.32 -0.15 -0.38 Global High Yield HW00 -0.10 -0.09 -0.14 0.67 -0.12 1.83 -0.30 -0.21 -0.05 -0.27 YTD European Currencies HP00 -1.40 -1.85 -1.34 -1.71 -4.07 -5.68 -1.48 -0.99 -0.12 -1.24 Euro Currencies HE00 -1.68 -2.25 -1.68 -2.05 -4.41 -6.01 -1.68 -1.20 -0.33 -1.44 Sterling HL00 0.26 0.47 0.63 0.26 -2.15 -3.79 -0.24 0.26 1.10 -0.04 European Issuers HWP0 -2.06 -1.96 -0.95 -1.33 -3.70 -5.31 -2.63 -2.14 -1.28 -2.39 European Currencies Constrained HPC0 -1.39 -1.83 -1.32 -1.69 -4.06 -5.66 -1.46 -0.97 -0.11 -1.22 Euro Constrained HEC0 -1.66 -2.22 -1.66 -2.03 -4.39 -5.99 -1.66 -1.18 -0.31 -1.42 European Issuer Constrained HQ0C -2.02 -1.92 -0.91 -1.29 -3.66 -5.27 -2.59 -2.11 -1.25 -2.36 Global High Yield HW00 -0.98 -0.49 1.30 0.92 -1.51 -3.15 -2.07 -1.58 -0.73 -1.85

Distressed UK retailer New Look (NEWLOK +20% excess return) made a

strong rebound despite reporting a sizable annual loss. Italian builder

Astaldi (ASTIM +14%) got a boost after shareholders were asked to approve

a capital increase. Galapagos Holdings (GALAPG -16%) returned to the

bottom of the rankings as the company continues to struggle with its debt

load.

Table 6: European Currency High Yield Index issuer returns

Ticker %weight Avg. Rating OAS OAS chg Total return% Excess return%

5 Best NEWLOK 0.114 CCC3 2,928 -527 19.51 19.76 ASTIM 0.160 CCC1 1,679 -546 13.62 13.69 SHODFP 0.144 B2 1,112 -258 10.22 10.52 TESFIN 0.058 CCC1 1,149 -309 6.62 6.85 SHFSJ 0.157 CCC1 795 -69 4.93 4.87 5 Worst GALAPG 0.052 CCC3 2,560 673 -16.42 -16.39 INLOTG 0.212 B1 924 250 -9.51 -9.51 DEBLN 0.068 B1 1,117 245 -5.76 -5.46 ADNT 0.288 BB3 506 98 -4.75 -4.79 STADAS 0.097 B3 655 91 -4.73 -4.80

Table 7: European high yield index characteristics 31-May Change vs Prior Month

Index Ticker Issues MktVal (EUR) YTW Mod Dur Issues MktVal (EUR) YTW Mod Dur European Currency HP00 609 329,678 3.86 4.02 -8 -12,073 0.2 0.06 Euro Currencies HE00 493 287,473 3.58 4.03 -6 -6,644 0.2 0 Sterling HL00 116 42,205 5.76 3.9 -2 -5,429 0.37 0.37 European Issuers HWP0 789 438,621 5 4.03 -17 -17,436 0.24 0.02


15

Composition

Chart 17: HP00 % weight by rating Chart 19: HP00 % weight by rating MOM change

Chart 18: HP00 % weight by sector Chart 20: HP00 % weight by sector MOM Change

71.1

24.9

4.1

BB

B

CCC/lower

-1.0 -0.5 0.0 0.5 1.0

BB

B

CCC/lower

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

Banking

Basic Industry

Telecommunications

Retail

Media

Automotive

Capital Goods

Healthcare

Services

Financial Services

Leisure

Utility

Energy

Consumer Goods

Transportation

Insurance

Real Estate


-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5

Banking

Basic Industry

Telecommunications

Retail

Media

Automotive

Capital Goods

Healthcare

Services

Financial Services

Leisure

Utility

Energy

Consumer Goods

Transportation

Insurance

Real Estate



16

Canadian High Yield Indices

Unlike other currency segments of the Global High Yield Index, C$ high yield

had a modest yield curve rally to at least partially offset spread-widening

losses (+0.22% vs -0.53%).

Chart 21: Canadian High Yield Index (HC00) monthly return attribution

Chart 22: Canada High Yield Index (HP00) spread performance

Table 7: Canadian high yield index characteristics Total Return Excess Return

Ticker Issues May YTD May YTD Canada High Yield Index HC00 32 0.16 1.78 -0.19 1.35 Global High Yield, Canadian Issuers Index HWC0 128 0.17 0.16 0.14 0.85

0.48%

-0.02%

0.21%

0.01%

-0.53%

0.00%

0.16%

-0.19%

-0.80% -0.60% -0.40% -0.20% 0.00% 0.20% 0.40% 0.60%

Coupon

Amort./Roll

Curve Shift

Curve Reshape

Spread Change

Volatility Change

Total Return

Excess Return

-7 -1

-43

-77

-23 -28-17

39

-11-19

7 10

200

250

300

350

400

450

-100

-80

-60

-40

-20

0

20

40

60



17

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Documents

Fall 08 - MLIndex System Yield.pdf8 9 10 3 13 13 14 4 14 14 15 5 15 15 16 6 16 16 17 7 17 17 18 8. ... date curve loss is a hefty 1.39% and at -1.79% the spread factor is even worse