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High-yield markets remained in price discovery over the latest week, as investors increasingly doubt the Fed's ability to control inflation without forcing a hard landing for the U.S. economy. The average bid for LCD's 15-bond sample of liquid high-yield issues plunged 237 bps for the week to May 12, to 88.21% of par, following on declines of 142 bps over the previous week, and 145 bps for the week to April 28.
The latest drop was the largest of the six straight weekly declines so far in the second quarter, and it added considerable distance from the 96.53 level on March 31. LCD's sample average has now turned lower 17 times in the 19 weeks so far in 2022. The latest level is down 15.71 points from 103.92 at the final reading of 2021, and it represents the lowest average for LCD's sample since a pandemic-era low at 84.73 on March 19, 2020.
Bids were lower for all 15 constituent bonds in the sample over the latest assessment period, reflecting drops of a point or more for 11 of the issues, including multi-point declines for four of the issues. Bausch Health Cos. 5.25% senior notes due 2031 led the decliners, as the price toppled 12.75 points on the week, to 54, as its debt instruments legged lower on a weak first-quarter earnings report and the company's downward revision to its projections for the balance of the year amid China lockdowns and inflationary headwinds.
As bids spiraled lower, the average yield to worst across LCD's 15-bond sample jumped 58 bps higher, to 7.56%, or 174 bps higher since the end of the first quarter, and up 325 bps year to date. The latest level is a high since the same reading on April 2, 2020. The average option-adjusted spread lurched 84 bps wider over the last week, to T+455, now wider by 138 bps in the second quarter, and 169 bps year to date. The LCD sample last closed wider in September 2020.
At the broader index level, the price for the S&P U.S. High Yield Corporate Bond Index declined 160 bps for the week to May 11, to 91.40% of par, down from 97.32 at the end of the first quarter and 103.93 at the end of 2021. The latest level marks a new low since May 4, 2020, in the context of a pandemic-era nadir at 80.05, on March 23, 2020.
The S&P index had a yield to worst at 7.22% on May 11, up 40 bps week-over-week, and versus 5.94% on March 31, 2022, and 4.22% on Dec. 31, 2021. The index option-adjusted spread gapped 41 bps wider week-over-week to T+421, versus T+326 on March 31, 2022 and T+299 at Dec. 31, 2021. The index last closed wider in November 2020, though the latest level remains well below the peak pandemic-era level at T+1,020, on March 23, 2020.
Bonds vs. loans The average bid of LCD's flow-name loan composite decreased 196 bps, to 95.93% of par, for a discounted loan yield of 5.41%. The gap between the bond yield and the discounted loan yield to maturity is 215 bps.