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High Yield Bond Yields Rise as Shipping and Supply Chain Disruptions Continue

Posted on October 25, 2021

With the pandemic in full swing for more than a year and a half now, global supply chains are in disarray. When the pandemic began, consumers in the United States were in lockdown mode both literally and figuratively. Travel options were limited, and the only stores open were those selling essential goods. This allowed many individuals and families who did not lose their jobs to save money, which they are now more than willing to spend. 

With that increase in spending comes the logistical nightmare of shipping and trucking the goods — many of them manufactured in China — to the stores and the people ordering them. The problem is multifaceted; involving shutdowns at Chinese factories, a scarcity of available shipping containers, dozens of ships docked off the California coast waiting to unload their cargo, and the odd predicament that there are too few truck drivers to move the goods leaving the port. Additionally, those few drivers often lose an entire day of driving while waiting to have their trucks loaded.

If this list of logistic issues were not enough, there is also a political aspect to the situation. Each government seems determined to alleviate the issues that affect their country alone. The United States government, for example, paved the way for the Port of San Diego and the Port of Los Angeles to operate around the clock, as well as increasing the number of hours a truck driver can operate per day in order to move goods more quickly. Unfortunately, this does not help with the imbalance in shipping prices. 

It now costs nearly $30,000 to send a container from China which is a six-fold increase from pre-pandemic prices. This is why shipping companies are scrambling to get ships to China as fast as possible to bring goods to the U.S., so much so that they return completely empty, even without containers which would help with the situation in Chinese ports.

Hope for normalization and a strong US economy has shielded bonds from much of the effects of the supply chain disruptions. In the last month, we have seen significant changes in yields on High Yield rated securities as issues have continued piling up. The chart below shows the Change in YTW by Industry for High Yield bonds over the last month. Across the board, yields are rising except for in a few key areas such as transportation and energy which can be explained by rising costs.

Industry	Current YTW	YTW Month Ago	YTW Change
Agriculture	4.18	3.93	0.25
Agricultural services	4.27	3.95	0.32
Construction	3.73	3.63	0.1
Building construction-general contractors and operative builders	3.24	3.21	0.03
Heavy construction other than building construction-contractors	4.26	3.69	0.57
Construction-special trade contractors	7.06	6.65	0.41
Energy	4.49	4.62	-0.13
Exploration and Production	3.99	3.95	0.04
Midstream (Midstream, Pipelines, Storage)	3.72	3.69	0.03
Oilfield Services (Drillers, Service, Technology, Refiners)	6.04	6.75	-0.71
Finance, Insurance, Real Estate	4.44	4.22	0.22
Depository institutions	3.16	2.89	0.27
Nondepository credit institutions	4.69	4.36	0.33
Holding and other investment offices	4.47	4.3	0.17
Insurance agents, brokers, and service	5.02	5.16	-0.14
Insurance carriers	4.05	3.62	0.43
Real estate	4.01	3.8	0.21
Security and commodity brokers, dealers, exchanges, and services	5.74	5.51	0.23
Manufacturing	4.11	3.93	0.18
Electronic and other electrical equipment and components, except computer	3.39	2.98	0.41
Industrial and commercial machinery and computer equipment	4.6	4.63	-0.03
Stone, clay, glass, and concrete products	3.67	3.31	0.36
Furniture and fixtures	3.63	3.54	0.09
Chemicals and allied products	4.57	4.31	0.26
Miscellaneous manufacturing industries	5.91	5.79	0.12
Lumber and wood products, except furniture	3.95	3.54	0.41
Food and kindred products	3.44	3.2	0.24
Apparel and other finished products made from fabrics and similar material	4.75	4.63	0.12
Fabricated metal products, except machinery and transportation equipment	3.73	3.46	0.27
Transportation equipment	3.64	3.59	0.05
Printing, publishing, and allied industries	5.02	5.44	-0.42
Petroleum refining and related industries	5.48	5.73	-0.25
Paper and allied products	3.92	3.91	0.01
Measuring, analyzing and controlling instruments; photographic, medical an	3.29	3.04	0.25
Primary metal industries	3.58	3.38	0.2
Rubber and miscellaneous plastics products	3.68	3.63	0.05
Mining	4.92	5	-0.08
Coal mining	7.6	8.65	-1.05
Oil and gas extraction	4.88	4.99	-0.11
Mining and quarrying of nonmetallic minerals, except fuels	4.58	4.67	-0.09
Metal mining	4.81	4.52	0.29
Retail Trade	4.55	4.35	0.2
General merchandise stores	4.3	3.95	0.35
Miscellaneous retail	5.24	4.99	0.25
Eating and drinking places	3.99	3.82	0.17
Food stores	3.76	3.65	0.11
Home furniture, furnishings, and equipment stores	6.21	6.36	-0.15
Building materials, hardware, garden supply, and mobile home dealers	3.73	3.53	0.2
Apparel and accessory stores	3.34	3.07	0.27
Automotive dealers and gasoline service stations	4.61	4.58	0.03
Services	4.45	4.31	0.14
Business services	4.63	4.42	0.21
Automotive repair, services, and parking	4.6	5.23	-0.63
Amusement and recreation services	4.5	4.54	-0.04
Engineering, accounting, research, management, and related services	4.23	4.1	0.13

(Article and Data by Mark McKenna, Head of Operations, AdvantageData)

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