CAM Investment Grade Weekly Insights


CAM Investment Grade Weekly Insights

Barring a stunning reversal, investment grade credit spreads will finish the week solidly wider.  The Bloomberg US Corporate Bond Index closed at 129 on Thursday October 19 after having closed the week prior at 124.  The 10yr is trading a 4.93% as we go to print Friday morning, higher by 32 basis points from the previous Friday close.  Through Thursday, the Corporate Index YTD total return was -2.53%.

Economics

It was a mixed bag for economic data this week.   The biggest surprise came on Tuesday which brought a Retail Sales print that defied expecations to the upside and painted a picture of a strong consumer that continued to spend in September.  On the other hand, housing related data remained sluggish.  Wednesday showed that US mortgage applications hit a 28-year low.  This was not a surprise, as mortgage rates flirted with 8% during the week while Thursday saw the 10yr Treasury close at 4.99%, its highest level since July of 2007.  Housing starts did show some signs of life, increasing by 7% during the month of September but overall homebuilder sentiment hit a 9-month low.  It is clear that, although housing prices have remained resilient, higher mortgage rates are having an impact on the housing market as whole.  Last but not least, WTI crude traded above $90 a barrel on Friday morning as traders fear war escalation in the middle east.

Issuance

It was a solid week for issuance, with banks leading the way, as the market digested $26bln in new supply.  New issue concessions were near 12bps on average this week, which are higher than they have been for some time –we like to see this as investors.  Next week, forecasts are calling for $15-$20bln of new debt, a more muted figure as companies continue to work through earnings.

Flows

According to Refinitiv Lipper, for the week ended October 18, investment-grade bond funds reported a net outflow of -$2.31bln.  October has been a tough month for bond funds with $5.9bln in outflows so far.  Flows for the full year are net positive +$18.2bln.

 

 

This information is intended solely to report on investment strategies identified by Cincinnati Asset Management. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. Fixed income securities may be sensitive to prevailing interest rates. When rates rise the value generally declines. Past performance is not a guarantee of future results.