Josh Adams – Portfolio Manager – Cincinnati Asset Management

11 Apr 2025

Insight, Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Credit spreads were wider again this week. The OAS on the corporate index closed at 114 on Thursday evening after ending the week prior at a spread of 109. Although it has been a volatile April, the IG market has behaved in a very orderly manner. The plumbing of the market is well intact with a variety of buyers and sellers transacting in normalized volumes and the new issue market is open for companies that want to borrow. The 10yr Treasury has been all over the map this month. The benchmark rate closed last week at 3.99% moving higher throughout this week to close Thursday at 4.42%. It is over 10bps higher again this morning as we go to print and there is plenty of speculation as to the reasons why. Suffice to say the Treasury market is highly complex and there is not a single definitive answer to the reason behind its price action. This is why CAM does not speculate on the direction of interest rates. We focus on credit risk which is much more controllable. One thing we do know is that Wednesday’s 10yr Treasury auction showed strong demand from buyers and there is no shortage of a bid for UST bonds as the 30yr auction was also strong. Through Thursday, the Corporate Bond Index year-to-date total return was -0.09% while the yield to maturity for the Index closed the day at 5.49%.

Economics

Major data this week was not released until Thursday and Friday but for the second week in a row it did not garner much attention as investors were focused on the volatility that is occurring in the here and now. The consumer price index (CPI) surprised to the downside with a softer inflation print relative to expectations. U.S. wholesale prices (PPI) also fell much more than expected. Both of these releases were positive for declining inflation but they were dismissed by the market due to their backward-looking nature and with inflationary tariffs looming.

Next week the highlights include retail sales, industrial production and housing starts.

Interesting Anecdotes

Deutsche Bank research published a midweek note showing recession pricing based on credit spreads. This puts some context around recent spread widening across credit markets. Unsurprisingly, higher quality credit spreads are pricing less risk than lower quality given that IG-rated companies are broadly better positioned to navigate a slowing economic environment.

On Thursday, Barclays research published an analysis showing that, in the first quarter, Friday trading of index-eligible IG and HY corporate bonds in the U.S. hit the highest level since 2013, making up 18% of weekly volumes. Barclays goes on to surmise that the most likely explanation is that, with rising volatility in the quarter, institutional investors were adjusting their positions on Fridays to hedge against potential market volatility over the weekend. We believe that this definitely played a part but we would also give credit to the fact that the first quarter experienced a record amount of issuance which would have also fed through to elevated trading volumes. Especially considering that most of the volatility occurred in the month of March while the first two months of the year were relatively benign. CBOE Volatility Index (VIX) values below 20 are typically viewed as a sign of stability in the markets and the VIX did not close above 20 in 2025 until February 27.

Issuance

Although it was a light week for issuance, it surpassed last week’s paltry total, an encouraging sign that the IG primary market is open for business. Borrowers priced $9bln this week with most of that coming on Thursday, as four borrowers forged ahead to print $5.25bln that day. New issue concessions were elevated (and attractive in our view) this week and investor demand was plentiful. The outlook for next week is uncertain and will ultimately be driven by market sentiment. It would not surprise us if there were a huge week for issuance if the fervor subsides or it could be another light week if risk assets remain volatile.

Flows

According to LSEG Lipper, for the week ended April 9, investment-grade bond funds reported their third net outflow of the year at -$6.08bln. This was the third consecutive week of negative flows. Total year-to-date flows into investment grade funds remained positive at +$13.23bln.

09 Apr 2025

Insight, Investment Grade Quarterly Josh Adams - Portfolio Manager 0 comment

2025 Q1 Investment Grade Quarterly

First Quarter Recap & Outlook
April 2025

Investment grade credit performed relatively well in the first quarter, especially compared to equities and other riskier assets. Spreads were remarkably stable during the first two months of the year before volatility picked up during the month of March. Although spreads finished the quarter wider, this was more than offset by lower Treasury yields and coupon income.

First Quarter Review

During the first quarter, the option adjusted spread (OAS) on the Bloomberg US Corporate Bond Index widened by 14 basis points to 94 after it began 2025 at a spread of 80. Higher quality credit outperformed lower quality credit amid widening spreads. The longer duration portion of the index (>10yrs to maturity) outperformed the intermediate maturity segment by 11 basis points on the back of declining Treasury yields.

Treasury yields peaked in early January with the 10-year opening the year at 4.57% then climbing higher in the first two weeks of the period, briefly touching 4.79% before drifting steadily lower, closing the quarter at 4.21%. The 2yr, 5yr and 10yr Treasury yields finished 36, 43 and 36 basis points lower, respectively, which played a large role in driving positive returns for credit.

Coupon income was a key contributor to returns during the quarter, accounting for nearly half of the Corporate Index total return during the period (+1.15% of the +2.31% total return was due to coupon). This coupon benefit is directly correlated with the yields and newly minted coupons available to investors in the investment grade primary market. U.S. high grade sales posted the busiest first quarter on record as IG-rated firms printed more than $531bln of new debt, besting 2024’s haul of $529bln. The previous five-year average was $469bln. As we have written previously, we believe the primary market is in the midst of a goldilocks moment where investors and well capitalized companies are well obliged to lend and borrow.

The yield to maturity on the corporate index finished the quarter at 5.15% and is still meaningfully elevated compared to the compensation that was available for most of the past decade. This has not been a fleeting opportunity as the yield for the index has exceeded 5% for the majority of trading days since the 4th quarter of 2022 while the 10-year average for this metric was just 3.73%. We believe that this continues to be an attractive entry point for IG credit and elevated yields have increased the usefulness of investment grade as a diversification tool and it has also put the asset class in a position to potentially generate attractive total returns over the next several years. Higher yields mitigate downside risk among the wide range of potential outcomes stemming from government policy, the Federal Reserve and geopolitics.

Recession Odds Increasing

According to a Bloomberg survey of economists, the probability of a recession over the course of the next year rose during the first quarter. Throughout January and most of February this indicator was at 20% but then it rose steadily to 30% by the end of March. Some of this was due to softening economic data but a large contributor was uncertainty around U.S. trade policy and geopolitical issues.
Building on our point about the diversification benefits of IG credit, it has generally performed well during recessionary periods.

Using data from the National Bureau of Economic Research, we examined the more modern era of recessions that occurred in the 1980’s and beyond. Some of these time periods are very short and do not necessarily paint a full picture, but the results showed that IG credit has been a powerful implement in achieving diversification during times of economic stress.

U.S. Trade Policy

During the first quarter, the specter of tariffs clouded investors’ attempts to quantify the impact of looming tariffs on the U.S. economy and consumer spending. We believe that tariffs will have a limited impact on our portfolio, not only because of the companies we own but also due to the contractual nature of bonds and their position within the capital structure. If a company suffers a lapse in profitability due to tariffs, then it may need to adjust its financial policy as a result. There is no requirement or enforceable agreement for a company to pay dividends or repurchase shares. If financial performance is impacted enough then discretionary shareholder returns become levers that can be pulled to increase financial flexibility. There is no such optionality for a company when it comes to interest expense and debt obligations. If a company were to default on its debt obligations, then bondholders would take control of the assets of the company.
We examined intermediate bond and stock performance of the largest automakers in the world that are most exposed to the 25% tariff that went into effect on April 3. The performance time period was limited to just the first quarter of 2025, when trade policy was dominating the news cycle.

The bonds posted varying degrees of positive returns during the first quarter, while the performance of the equities was disparate. The point of this exercise was not to make the case for bonds over stocks but to indicate the potential price instability of more volatile asset classes wrought by the uncertainty of trade policy. Bottom line, by their very nature bonds have much less exposure to headline risk and manageable declines in earnings because bonds get paid first due to their priority in the capital structure. Tariffs are a headwind for profitability but is unlikely to impair an investment grade rated company from being able to adequately service its debt. The above comparison could potentially look a lot more favorable for equities if tariffs are reversed at some point in the future.

Federal Reserve

It was an uneventful quarter for the FOMC with meetings in January and March. The committee elected to hold its policy rate steady both times. The Fed released an updated dot plot in March with a few changes at the margin from December. The latest version of the plot showed that policymakers at the median continued to expect two rate cuts (50bps) in 2025. However, examining the details, there were more policymakers expecting zero or just one cut than there were in December. Investors were more dovish than the FOMC, and at quarter end, interest rate futures markets were pricing three cuts (75bps) by the end of 2025. We expect one or two cuts in 2025 as the most likely outcome but the state of the economy and the labor market will have much to say about the final outcome.
One theme we have been writing about over the course of the past few letters is the re-steepening of the 2/10 Treasury curve. We view this steepening as a product of investors reacting to the 100bps of cuts that the Fed delivered in the final months of 2024 as well as the anticipation of additional cuts in 2025 and beyond. As active managers we applaud a steeper Treasury curve because it creates a more opportunistic environment.

For those investors that have large allocations to short term investments and money markets, we recommend an evaluation of reinvestment risk. If the two-year Treasury were to continue to decline on the back of Fed cuts, then short term investments could earn substantially less than those further out the curve. Investors may consider reallocating some of that short duration capital to intermediate duration assets with greater return potential.

It’s a Marathon

The first quarter was a busy one –record primary volume, macroeconomic uncertainty and spread variability made for some long days. Given the price action in the first trading days of the second quarter it appears that volatility is here to stay. We will continue to lead with our focus on preservation of capital, carrying out our responsibilities with attention, care and a desire to please our clients. Credit selection and an ability to be nimble are paramount in order to successfully navigate what lies ahead.
Thank you for your continued interest. Please do not hesitate to contact us to discuss all topics relevant to credit.

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. Past performance is not a guarantee of future results. Gross of advisory fee performance does not reflect the deduction of investment advisory fees. Our advisory fees are disclosed in Form ADV Part 2A. Accounts managed through brokerage firm programs usually will include additional fees. Returns are calculated monthly in U.S. dollars and include reinvestment of dividends and interest. The Index is unmanaged and does not take into account fees, expenses, and transaction costs. It is shown for comparative purposes and is based on information generally available to the public from sources believed to be reliable. No representation is made to its accuracy or completeness.

The information provided in this report should not be considered a recommendation to purchase or sell any particular security. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s portfolio. Fixed income investments have varying degrees of credit risk, interest rate risk, default risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. There is no assurance that any securities discussed herein have been held or will be held in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed do not represent an account’s entire portfolio and, in the aggregate, may represent only a small percentage of an account’s portfolio holdings, if any. It should not be assumed that any of the securities transactions or holdings discussed were or will prove to be profitable, or that the investment decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein. Upon request, Cincinnati Asset Management will furnish a list of all security recommendations made within the past year.

Additional disclosures on the material risks and potential benefits of investing in corporate bonds are available on our website: https://www.cambonds.com/disclosure-statements/

i Bloomberg First Word, March 28 2025, “US High-Grade Bond Sales Post Record 1Q; Slower Pace Next Week”

ii Bloomberg, March 31 2025, “United States Recession Probability Forecast”

iii National Bureau of Economic Research, March 31 2025, “Business Cycle Dating” The NBER defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months, considering factors like GDP, employment, income, sales, and industrial production.”

iv We selected fixed income securities for this exercise by screening for the most recently issued corporate bonds that were nearest 10yrs to maturity that could provide a full quarter of 1Q2025 performance; we also gave credence to Bloomberg liquidity scores selecting the most liquid bonds, all else being equal.

v The Federal Reserve, March 19 2025, “Summary of Economic Projections”

vi Bloomberg, March 31 2025, “World Interest Rate Probability (WIRP)”

04 Apr 2025

Insight, Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Credit spreads will finish this week much wider. The OAS on the corporate index closed at 102 on Thursday evening after ending the week prior at a spread of 93 and the IG credit market is generically 10bps wider as we go to print mid-morning on Friday. The 10yr Treasury yield rallied after Wednesday’s tariff announcement, moving from 4.25% at the end of last week to 4.03% at Thursday’s close. The benchmark rate is rallying again this Friday morning and is another 13bps lower at press time on the back of China’s retaliatory tariff response and weakness in global equity markets. IG credit is hanging in there for now and doing its job as a tool for diversification. Through Thursday, the Corporate Bond Index year-to-date total return was +2.82% while the yield to maturity for the Index closed the day at 5.06%.

Economics

The data this week took a back seat to global trade. The U.S. tariff announcements on Wednesday roiled global markets causing a rout in equities and wider credit spreads. U.S. Treasuries were a safe haven for investors and yields plunged. Friday’s employment report for the month of March was solid as payrolls posted a broad advance, easily besting the consensus number. The unemployment rate ticked higher from 4.1% in February to 4.2% for March. Markets paid little mind to the positive report with some investors dismissing it as backward-looking relative to the uncertainty regard trade. Traders are now trying to figure out how to navigate a global trade war as China announced retaliatory tariffs on Friday. It appears that there will not be a quick resolution on trade and that volatility is here to stay.

Looking ahead, all eyes will be on Fed chairman Jerome Powell who is slated to speak later this Friday morning. Major data releases next week include CPI and PPI, both in the latter half of the week.

Issuance

It was a very light week in the primary market which is no surprise considering the volatile backdrop. Just four firms sold $6bln of new debt relative to the $20bln estimate. The outlook for next week is murky and will be dependent on the market tone –dealers are estimating $10-$15bln of new supply.

Flows

According to LSEG Lipper, for the week ended March April 2, investment-grade bond funds reported their second net outflow of the year at -$353mm. This was the second consecutive week of modestly negative flows. Total year-to-date flows into investment grade funds are still soundly positive at +$19.31bln.

28 Mar 2025

Insight, Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Credit spreads look set to finish slightly wider this week with the OAS on the corporate index closing at 91 on Thursday evening after ending the week prior at a spread of 90. The 10yr Treasury yield rose throughout the week and was 11 basis points higher during the period through Thursday but the benchmark rate is rallying amid a risk-off tone as we go to print this Friday afternoon and is currently only 3bps higher on the week. Through Thursday, the Corporate Bond Index year-to-date total return was +1.59% while the yield to maturity for the Index closed the day at 5.24%.

Economics

Investors continue to search for answers as the economic data this week did not do much to absolve the wall of worry that continues to weigh on risk assets.

Consumer confidence data continued its decline as the Expectations Index for the month of March fell to its lowest point in a dozen years. On the bright side, new home sales posted a modest gain for the month of February giving some hope that demand will impress during the spring selling season. Durable goods also came in better than expectations but it is hard to feel too good about this data with uncertainty surrounding trade policy and tariffs. On Thursday, Q42024 GDP came in stronger than estimates but accompanying trade data for February was ugly for Q12025 GDP. Finally on Friday we got some negative news with PCE (Fed’s preferred inflation gauge) and spending data. Inflation came in slightly hot relative to expectations and personal spending was woeful. Time will tell if this was a temporary blip or the beginning of a weakening trend for the consumer.

Next week the data is a little lighter and less meaningful in the first part of the week before we get the March unemployment report on Friday morning.

Issuance

The primary market exceeded expectations this week as more than $41bln of new debt was priced by a bevy of eager borrowers. Although there is one trading day left in the month that will likely have some new issuance, 2025 has already eclipsed 2024 as the busiest on record for a first quarter.

Next week is expected to be a lighter one with tariffs looming and syndicate desks are looking for just $20bln of new supply.

Flows

According to LSEG Lipper, for the week ended March 26, investment-grade bond funds reported their first net outflow of the year at -$406mm. Total year-to-date flows into investment grade funds were +$19.66bln.

21 Mar 2025

Insight, Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Credit spreads clawed their way back from the wides of last week and are poised to finish the period tighter. The OAS on the Corporate Index was 3 basis points tighter this week through Thursday. The 10yr Treasury yield inched lower throughout the week as investors remained wary of risk assets. The 10yr was 7bps lower through Thursday. Through Thursday, the Corporate Bond Index year-to-date total return was +2.49% while the yield to maturity for the Index closed the day at 5.13%.

Economics

The data this week yielded some mixed messages. Retail sales on Monday were soft as February sales advanced just +0.2% but the bigger news was a revision of January’s data that made it the largest monthly decline since 2021. There were some bright spots for the home construction market on Tuesday as housing starts showed a rebound for the month of February but permitting activity suggested a slowdown in future months. Staying with the housing theme for a moment, Thursday also had a positive release for existing home sales as they surprised to the upside for February, but affordability concerns remain a headwind. Wednesday’s FOMC release was unsurprising as the committee elected to hold rates steady. Commentary from Chairman Powell was viewed by investors as having a dovish tilt, and we agree, but the dot plot was slightly more hawkish than the prior release. The updated dot plot median expectations were unchanged with most members expecting 50ps worth of cuts by the end of 2025. However, examining the details, there were more policymakers expecting zero or just one cut than there were in December. Recall that the Summary of Policy Expectations (dot plot) is released every three months so we will not get our next update until the FOMC release on June 18.

There are now plenty of diverging views among investors and street economists with regard to the Fed’s policy rate. At Thursday’s close, interest rate futures were pricing 2.7 cuts by the end of 2025. There are some strategists predicting no cuts at all and then there are those in the recession/slow down camp that are predicting 3+ cuts. There were some calling for hikes but they seem to have gone into hiding for now. We view this Fed as being data dependent with a dovish bias and believe that 1 or 2 cuts before the end of 2025 as the most likely outcome.

Next week brings plenty to parse with new home sales, consumer confidence, durable goods, GDP, personal consumption, and finally on Friday we get the Fed’s preferred inflation gauge with the release of Core PCE.

Issuance

The new issue market for corporate bonds was in line with expectations this week as borrowers priced $33bln of new debt relative to the $35bln estimate. Concessions were narrower this week amid a more positive backdrop for credit than what we saw for most of the prior two weeks. YTD activity has been brisk thus far with $490bln of new issue, just -2% off 2024’s pace. Next week, syndicate desks are looking for around $30bln of new supply.

Flows

According to LSEG Lipper, for the week ended March 19, investment-grade bond funds reported a net inflow of +$336mm. Total year-to-date flows into investment grade funds were +$20.07bln.

14 Mar 2025

Insight, Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Credit spreads moved meaningfully wider this week in sympathy with the rout in equities but the credit market has a more optimistic vibe as we go to print Friday morning. The OAS on the Corporate Index was 10 basis points wider on the week, closing at 97, its widest level of 2025 and the widest going back to early September 2024. It is worth noting that the move in credit spreads was extremely orderly relative to equities and the new issue market remained open. The 10yr Treasury was relatively stable during the week, especially compared to risk assets. The benchmark rate was 3bps higher on the week through Thursday. Through Thursday, the Corporate Bond Index year-to-date total return remained in positive territory at +1.73% while the yield to maturity for the Index closed the day at 5.22%.

Economics

Investors remained focused on the possibility of a slowing U.S. economy as they watched the data this week. Midweek headline CPI and PPI prints came in lower than expectations. These releases are not as meaningful to the FOMC as February PCE which will be released on March 28. Friday brought some gloomy data with the release of the U-Mich. Consumer sentiment data which showed that consumer long-term inflation expectations hit a 32-year high.

Next week’s focus will be on retail sales, housing starts and the FOMC meeting. Interest rate futures are pricing in a 99+% chance of no change in the Fed’s policy rate at the conclusion of that meeting on Wednesday. Looking ahead, traders expect ~2.7 cuts before year end with them likely occurring in June and September. To be clear, market sentiment and economic data can send those expectations in either direction at any given time.

Issuance

The new issue market remained active and healthy this week amid heightened volatility. Companies priced $35bln in new bonds which fell short of the $45bln estimate. Both Monday and Thursday saw some issuers stand down preferring to wait for quieter days to tap the market. Syndicate desks are looking for around $35bln of issuance next week and Monday is poised to be especially busy as rumor has it that more than a dozen companies will look to front-run the FOMC meeting if the tone is receptive. Issuers have historically avoided bringing new deals coincident with FOMC releases just to avoid any market surprises from the release itself or the ensuing press conference.

Flows

According to LSEG Lipper, for the week ended March 12, investment-grade bond funds reported a net inflow of +$942mm. Total year-to-date flows into investment grade funds were +$19.74bln.

07 Mar 2025

Insight, Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Credit spreads showed some stability this week which was impressive given the deluge of new issue supply. It looks as though the period will finish on a positive note based on price action this Friday morning. The OAS on the Corporate Index was unchanged at 87 basis points this week through Thursday. The 10yr Treasury yield rallied on Monday amid a risk-off sentiment before inching higher throughout the rest of the week. The benchmark rate was 7bps higher on the week through Thursday. Through Thursday, the Corporate Bond Index year-to-date total return was +2.10% while the yield to maturity for the Index closed the day at 5.15%.

Economics

Growth concerns were top of mind for market participants this week and Monday’s PMI report enforced some of those fears as the overall index came in lighter than expectations with a big jump in the Prices Paid component, likely due to the potential impact of tariffs. On the positive side, the ISM service index release showed an increase and it has now expanded in 54 of the past 57 months. Finally, Friday’s payroll report was slightly lower than expected in terms of jobs added during February and the unemployment rate ticked higher from 4.0% to 4.1% but both numbers were well within the margin of error and stocks actually staged a brief relief rally on the back of the release.

Next week has some economic prints of note. Things start to ramp up on Wednesday with a CPI release followed by PPI measures on Thursday. Looking further ahead, the FOMC will meet for the first time since the end of January on March 19.

Issuance

There were lofty expectations ($50bln) for issuance this week and they were exceeded in a big way. Mars Inc. led the way with a $26bln jumbo deal enroute to a $73bln week that saw dozens of companies tap the market. It was the busiest week for the primary market since the first week of September 2024 when $80bln printed. Syndicate desks are looking for more action next week with estimates calling for $45bln in new supply. Investors have plenty of cash to put to work and are still finding good value with most borrowers paying more than 5% to issue intermediate bonds. Looking at it from the standpoint of the borrowers, costs are elevated relative to the low-rate era but the cost of capital is still reasonable for large healthy companies when viewed through the lens of an overall capital allocation framework. This has served to create a win-win type of environment for both investors and borrowers. Year-to-date issuance has now surpassed $420bln which just slightly trails (-3% y/y) 2024’s pace.

Flows

According to LSEG Lipper, for the week ended March 5, investment-grade bond funds reported a net inflow of +$2.6bln. Total year-to-date flows into investment grade funds were +$18.8bln.

28 Feb 2025

Insight, Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Credit spreads finally experienced their first bout of widening in 2025. Now, to be clear, we are not talking about much of a move in the grand scheme of things. Although the index closed Thursday at its widest level of 2025 it sits only 7 basis points off the tights. The OAS on the Corporate Index moved 4 basis points wider week over week through Thursday February 27. The 10yr Treasury yield rallied hard and moved 17 basis points lower over the same time period. Through Thursday, the Corporate Bond Index year-to-date total return was +2.29% while the yield to maturity for the Index closed the day at 5.12%.

Economics

Tuesday saw a pessimistic consumer confidence print as the measure posted its biggest drop since 2021 and is now sitting at an eight-month low. This prompted Treasury yields to move lower. On Wednesday we got data that showed that elevated mortgage rates and bad weather continued to weigh on new home sales, as they declined 10.5% during January. On Thursday the durable goods release was solid but some areas were weak and it may be that the pop in the indicator was an attempt by buyers to get ahead of tariffs. Friday the data was mixed as inflation came in line with expectations while income surprised to the upside but spending underwhelmed.

Next week the highlights include ISM manufacturing/services, auto sales and the unemployment report for the month of February.

Issuance

It was another solid week of issuance as wider spreads did nothing to stop issuer enthusiasm. More than $51bln of new debt was priced during the last week of February, pushing the monthly total to nearly $161bln. Note that this is 8% shy of what dealers were expecting for the month ($175bln) but was still the second busiest February on record, eclipsed only by last year’s total of $197bln. Year-to-date issuance has now eclipsed $347bln.

With the move lower in Treasury yields more than offsetting the move wider in spreads the funding environment is as attractive as it has been at any point this year. Next week could get things off to a hot start for the month of March with more than $50bln of issuance.

Flows

According to LSEG Lipper, for the week ended February 26, investment-grade bond funds reported a net inflow of +$2bln. Total year-to-date flows into investment grade funds were +$16.2bln.

21 Feb 2025

Insight, Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Credit spreads remained near their tightest levels of 2025 during the holiday shortened week. The option adjusted spread of the Bloomberg US Corporate Bond Index closed at 78 on Thursday February 20 after closing the week prior at the same level. The 10yr Treasury yield did not exhibit much change during the week and was 3 basis points lower on the week through Thursday evening. Through Thursday, the Corporate Bond Index year-to-date total return was +1.15% while the yield to maturity for the Index closed the day at 5.28%.

Economics

The highlight of an otherwise quiet week was the Wednesday release of the minutes from the January FOMC meeting. The minutes showed that the majority of policymakers believed that inflation was somewhat elevated and that they needed to see continued disinflation in order to be confident about the longer term 2% target. As of Friday morning, interest rate futures were pricing almost no chance of a cut at the March meeting which is just less than a month away. Futures were pricing in a 24% cut at the May meeting and a 41% chance in June. All told, traders are still expecting roughly 1.7 cuts before the end of this year (between 1 and 2). Recall that the dot plot released at the end of December showed a median expectation from the FOMC of 2 cuts in 2025. A new dot plot will be released at the March meeting.

Next week will be incredibly busy as far as economic releases are concerned. Prints that have market moving potential include GDP, Core PCE and Personal Income/Spending on Thursday and Friday.

Issuance

New corporate issuance handily topped the estimate of $40bln on the week with the finally tally coming in at more than $52bln. This was an especially impressive haul considering that the market was closed on Monday in observance of President’s Day. Concessions ticked higher this week as new issuers paid about 5bps for new bonds relative to secondary issues. Syndicate desks are looking for around $30bln of new supply next week as February comes to a close.

Flows

According to LSEG Lipper, for the week ended February 19, investment-grade bond funds reported a net inflow of +1.82bln. Total year-to-date flows into investment grade funds were +$14.2bln.

31 Jan 2025

Insight, Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Credit spreads remained near their tightest levels of 2025 during the week. The option adjusted spread of the Bloomberg US Corporate Bond Index closed at 79 on Thursday January 30 after closing the week prior at 78. The 10yr Treasury yield moved lower on Monday morning and then traded in a tight range thereafter. The benchmark rate was 10 basis points lower on the week as we went to print Friday morning. Through Thursday, the Corporate Bond Index year-to-date total return was +0.75% while the yield to maturity for the Index closed the day at 5.29%.

Economics

It was a very busy week for economic releases that also included an FOMC meeting. On Tuesday we got a positive indicator as demand for core capital goods rose more than expected in December. However, data on that very same day showed that consumer confidence declined in the month of January. Wednesday’s Fed meeting was in-line with expectations as the central bank held rates steady and signaled that it is in no hurry to cut rates further. Recall that the Fed’s last dot plot in December showed the median expectation of just 50bps worth of rate cuts in 2025. There are now some economists on the street with out of consensus calls looking for no cuts at all or possibly even rate hikes if inflation surprises to the upside. Thursday’s GDP release showed that the U.S. economy ended 2024 on a solid note, expanding at a +2.3% annualized rate in the fourth quarter of the year. Finally on Friday, we got the Fed’s preferred inflation gauge with core PCE coming in at +2.8%, which was on the mark relative to forecasts. The consumer spending portion of the data release was strong for the second consecutive month but this was balanced out by the savings rate which dipped to a two-year low.

Next week is another busy one with ISM manufacturing/services and a host of other eco-prints. The finale will come on Friday morning with the January unemployment report.

Issuance

New corporate issuance beat estimates this week, topping $31bln. The monthly total also eclipsed the $175bln dealer forecast coming in at $186.4bln for January. This was just $3bln less than the record-breaking January 2024 tally. Syndicate desks are looking for February to be a strong month as well with forecasts predicting $175bln of new debt.

Flows

According to LSEG Lipper, for the week ended January 29, investment-grade bond funds reported a net inflow of +1.34bln. Total year-to-date flows into investment grade funds were +$5.29bln.

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