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After a volatile end to 2018 the European high yield market has started 2019 on the front foot, with the yield on the Euro HY Corporate Index tightening by 60bp to 4.16% since the start of the year.

January is traditionally the month of no fun. From Dry January to Veganuary, the theme is usually based on giving something up.

Friday is a big day for the US economy. We have labour market data in the form of non-farm payrolls, unemployment and average hourly earnings at 13:30 GMT, followed 90 minutes later by the ISM Manufacturing Index and the University of Michigan’s consumer confidence indicators. All of these are tier one data that have the potential to change the course of the rally we have enjoyed so far this year, for better or worse. Our view that the sell-off in Q4 2018, particularly in December, was an intra-cycle dip rather than the beginning of the end has held up, but Friday’s data dump will have a significant bearing on where we go from here.

January has been a very quiet month for the European CLO market, with spreads tightening but still relatively wide. While we know there are around 30 different CLO warehouses open – some of which are for deals that couldn’t be priced in December and were postponed – the pipeline is struggling to materialise. So far only CSAM has managed to price a new deal, and in the process showed how difficult it has become to make the arbitrage to work for equity investors (see our recent blog CLO Arbitrage Worst Since 2013).

In our latest video blog, TwentyFour CEO and portfolio manager Mark Holman discusses why markets have recovered so strongly from a difficult start to the year, and whether the rally has more room to run.

The fourth quarter of 2018 is starting to look like a distant dream for the US high yield market. In the first three weeks of this year the US HY Index (B1-rated) has produced a year-to-date total return of 3.98%, while the equivalent CCC-rated index has delivered a YTD return of 5.63%.