Author: Josh Adams - Portfolio Manager

Credit spreads were mostly unchanged this week through Thursday, sitting very near cyclical tights.  Technically, the OAS for the US Corporate Bond Index was 1bp wider on the week through Thursday.  The index has traded in a tight 5bp range of 84-89 since the final trading days of May. The tone is stable Friday morning as we go to print.  The 10yr Treasury yield moved slightly lower throughout the week, from 4.38% last Friday to 4.25% Friday morning.  Through Wednesday, the Corporate Bond Index year-to-date total return was +3.85% while the yield to maturity for the Index closed the day at 5.04%.

Economics

It was an interesting week for data.  Housing was mixed as existing home sales came in with a slight beat but new home sales numbers were extremely weak as sticky mortgage rates have done little to incentivize buyers to come off the sidelines and were a headwind for affordability.  GDP was revised down from -0.2% to -0.5%.  Finally on Friday, personal income fell more than expected and spending also declined.  Core PCE came in a tick higher than expected but investors were sanguine on the number as most of the inflation came on the services side making it a classic “better than feared” print.  Taking it all together, there is still not much evidence in the numbers that show that tariffs are having an outsize impact on inflation but there is some evidence of consumers pulling back on spending.  Various Fed commentators lamented during the week (Daly, Waller) that the central bank may indeed need to start cutting its policy rate sooner rather than later.  However, there are still numerous FOMC voting members, including Chair Powell, that prefer a more deliberate approach.

Next week, the big highlight is the employment report for the month of June which will be released a day early on Thursday due to the 4^th of July holiday.

Primary Market

This week was busier than most forecasters had predicted as nearly $37bln of new debt was priced, easily besting the estimate of $25bln.  Yankee issuers led the way this week, that is companies that are based in other countries (or foreign governments) that elect to issue $USD in the US corporate market.  Next week is expected to be very light with the 4^th of July holiday looming at the end of the week.  Underwriters are looking for just $5-$10bln of new supply.  YTD new issue volume has now crested $890bln which is +3% ahead of 2024’s pace.  Recall that 2024 was the second busiest year ever for the primary market, trailing only the pandemic fueled rush for liquidity that occurred during 2020.

Flows

According to LSEG Lipper, for the week ended June 25, investment-grade bond funds reported a net inflow of +$1.3bln. Total year-to-date flows into investment grade were +$18.5bln.

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.

Credit spreads were unchanged this week through Wednesday, while the capital markets were closed on Thursday in observance of Juneteenth.  The tone is little changed this Friday morning as we go to print with the US Corporate Bond Index wrapped around a spread (OAS) of 85.  The 10yr Treasury yield moved slightly higher this week as the benchmark went from 4.40% at the end of last week to 4.43% early Friday morning.  Market sentiment is cautious overall given the backdrop of geopolitical uncertainty.  Through Wednesday, the Corporate Bond Index year-to-date total return was +2.92% while the yield to maturity for the Index closed the day at 5.18%.

Economics

Retail sales were soft this week, though a large part of that move was driven by a decline in auto-sales.  Still, it points to continuing struggles for the retail industry driven by tariff uncertainty.  The May industrial production report was better than feared as the gauge continued to muddle along with some pockets of strength.  Housing starts and permits data was very soft as total housing starts fell almost 10% in May driven by multifamily.  There are a multitude of headwinds for the housing sector, most especially the high cost to build, elevated cost of capital and stubbornly high mortgage rates.

The highlight of the week was the FOMC meeting where the central bank held rates steady in what was a unanimous decision by all 12 voting members.  There are some diverging views of committee members when looking at the Summary of Economic Projections (dot plot).  The most recent version of the dots, released every three months, showed that the median FOMC member continued to expect 50bps of cuts in 2025.  There were a number of committee members that believed the FOMC should remain on hold all year and that grew from 4 members to 7 members since the last dot plot in March.  We continue to expect 1-2 cuts in 2025 as our base case but 3 or 4 cuts is a distinct possibility if the economy continues to soften.

There are some interesting prints next week including PMI, existing home sales, GDP, durable goods and finally the Fed’s preferred inflation gauge on Friday morning, core PCE.

Primary Market

Issuance was in line with expectations this week as $18bln of debt priced on Monday & Tuesday.  It was a somewhat disjointed week for the primary calendar with the FOMC meeting on Wednesday and a market holiday on Thursday.  YTD issuance stands at $853.2bln, slightly ahead of 2024’s pace.  The street is looking for $20-$25bln of issuance next week with most of that activity expected in the front half of the week.

Flows

According to LSEG Lipper, for the week ended June 18, investment-grade bond funds reported their third consecutive week of inflows at +$929.6m. Total year-to-date flows into investment grade were +$17.23bln.

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.

Credit spreads were slightly tighter this week through Thursday but tensions are high this Friday morning as the market processes recent developments in the Middle East.  The US Corporate Bond Index closed last week at 85 and it was at 84 when the market closed this Thursday.  The market is generically 1-2 bps wider Friday mid-morning as we go to print and equities were also getting hit in a risk-off move related to Israel and Iran.  The 10yr Treasury yield was solidly lower (-15bps) on the week, moving from 4.51% at the end of the last week to 4.36% through Thursday.  Rates have moved steadily lower since May 21 when the 10yr closed at 4.60% but the current yield is still very close to the YTD average of 4.41%.  Through Thursday, the Corporate Bond Index year-to-date total return was +3.14% while the yield to maturity for the Index closed the day at 5.14%.

Economics

The data was mixed this week but for the most part it continued to show that the U.S. economy has held up well in the face of uncertain trade policy.  The Consumer Price Index showed an increase of +0.1% for May and +2.4% year over year.  This CPI print was a benign one for inflation indicating that tariffs have not yet had the impact that many expected, although it is still early days.  The US Producer Price Index was also a bit softer than some investors had feared showing an increase of +0.1% in May.  Finally on Friday, consumer sentiment data showed improvement and inflation expectations also eased.  Bottom line, it was a pretty good week for inflation.

Next week brings a busier calendar with most of the action taking place on Tuesday and Wednesday.  Retail sales numbers for May will be released on Tuesday as well as data on import prices and industrial production.  Housing starts will be released Wednesday morning and then the FOMC rate decision will occur that afternoon.  We are firmly in the pause camp for this meeting and expect that the Fed will elect to hold its policy rate steady.

Away from economics, investors will continue to monitor the situation in the Middle East as Israel has carried out airstrikes against some of Iran’s nuclear and military facilities.  Escalation could be negative for risk assets and it would likely send oil prices higher.

Primary Market

Issuance was just a bit light relative to expectations this week as companies priced $20.5bln of new debt while the street had been looking for $25bln.  It wasn’t a terribly exciting week of issuance in our view as it was mostly comprised of less frequent, less attractive issuers with concessions that were not overly appealing.  YTD issuance stands at $835.2bln just slightly ahead of 2024’s pace.  Next week is expected to be on the quiet side with dealers looking for $15-$20bln of new supply concentrated on Monday and Tuesday.  With the FOMC meeting on Wednesday and a market holiday for Juneteenth on Thursday, it adds up to a light week.

Flows

According to LSEG Lipper, for the week ended June 11, investment-grade bond funds reported another strong week of inflows at +$2.29bln. Total year-to-date flows into investment grade were +$16.3bln.

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.

Credit spreads moved tighter this week.  The US Corporate Bond Index closed last week at 91 and had tightened to 89 as the market closed on Thursday.  The 10yr Treasury yield is lower thus far on the week to the tune of 9bps as we go to print.  The benchmark rate closed last Friday at 4.51% and it was 4.42% by Thursday’s close. Through Thursday, the Corporate Bond Index year-to-date total return was +2.08% while the yield to maturity for the Index closed the day at 5.25%.

Economics

It was a busy economic calendar this week.  Durable goods orders came in weak after previous releases were stronger than expected as firms piled on orders to get ahead of tariffs.  Consumer confidence showed a rebound in May after five straight months of declines but it still remains at depressed levels.  The latest GDP update for Q1 came in at -0.2% which, although negative, actually exceeded the estimate of -0.3%.  Finally, the most anticipated releases came on Friday morning with personal spending data and core PCE.  Headline PCE rose just 0.1% in April and the year over year measure moved to 2.1% in April from 2.3% in March.  Consumer spending fared okay in April all things considered posting a +0.2% increase led by services.  It feels a bit like a broken record to keep stating that it is simply too early to know what impact tariffs will have on inflation and consumer health but that is the reality.

Next week is another busy one that culminates in an employment report on Friday, June 6^th.  Looking further ahead, the next FOMC meeting is on June 18^th.  Interest rate futures on Friday morning are pricing just a 2.1% chance of a cut at that meeting.  For contrast, exactly one month ago, amid a bleaker outlook for global trade, those same futures were pricing a 59% chance of cut at the June meeting.  The mood of market participants has certainly changed, but we now wonder if risk assets have retraced too far?

Primary Market

It was a solid if uneventful holiday-shortened week of issuance as companies priced $21.6bln of new debt which was in line with estimates.  Volume for the month of May pushed past $152bln, making it the busiest month of May since 2020 when $242bln was borrowed as companies shored up liquidity during the early days of the pandemic.  Investor demand was strong this week and concessions were meager.  Next week dealers are looking for ~$30bln in new debt.

Flows

According to LSEG Lipper, for the week ended May 28, investment-grade bond funds reported an inflow of +$1.73bln. Total year-to-date flows into investment grade were +$9.91bln.

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.

Credit spreads moved materially tighter this week as investors embraced risk across all markets on the back of subsiding fears surrounding some of the worst outcomes for global trade.  The US Corporate Bond Index closed last week at 99 and had tightened to 91 as the market closed on Thursday.  The 10yr Treasury yield started the week higher on trade enthusiasm and then traded within a narrow range for most of the week.  The benchmark rate closed last Friday at 4.38% and it was 4.43% by Thursday’s close. Through Thursday, the Corporate Bond Index year-to-date total return was +1.53% while the yield to maturity for the Index closed the day at 5.30%.

Economics

There was a bounty of economic data this week.  The CPI print for the month of April was relatively benign.  Core CPI has risen 2.8% over the past year and at an annualized rate of 2.1% over the past three months, which is an improvement relative to the same time period last year.  The FOMC is likely pleased with this print but also cognizant of the fact that it does not fully reflect the rapid change in trade policy.  Retail sales were slightly better than expectations for the month of April and March data was revised higher but, again, there was much noise in the data due to tariff impacts and it will take some time to see how much spring spending was pulled forward by consumers in order to get ahead of price increases.  Both small business and consumer confidence continued to decline, which could impact labor demand and consumer spending in the future.  Finally, housing starts posted a nice bump in April but a deeper dive into the data showed a collapse in building permits suggesting weaker activity in the ensuing months.

Next week is a very light calendar of economic data domestically.  Globally, both the UK and Japan will release inflation numbers that could give investors an idea of what those central bank’s will be looking to do with their policy rates.

Primary Market

It was a brisk week for issuance as companies priced $40bln in new debt besting projections of $35bln.  Concessions were reasonable and investor demand was solid putting the primary market in a “well balanced” state in our view.  To expand a bit on our thoughts, we viewed pricing for most issues this week as favorable against a demand backdrop that was good but not great.  It can be difficult to extract value from the primary market when demand investor demand is voracious, as that type of environment can lead to less favorable pricing.  Next week is expected to be on the lighter side with syndicate desks looking for $25bln in primary volume.

Flows

According to LSEG Lipper, for the week ended May 14, investment-grade bond funds reported an inflow of +$1.86bln. This broke a 7-week streak of trade-turmoil outflows.  Total year-to-date flows into investment grade were +$6.649bln.

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.

Credit spreads were listless this week, drifting wider through the first four trading days of the period before they snapped tighter Friday on the back of a stronger than expected payroll release for the month of April.  The US Corporate Bond Index closed last week at 101 and had moved out to 106 by Thursday.  Most bonds are 2-3bps tighter on Friday.  The 10yr Treasury was in risk-off mode this week until Friday when the yield gapped higher after strong job numbers.  The benchmark rate closed last week at 4.24% and is wrapped around 4.33% as we go to print this Friday afternoon. Through Thursday, the Corporate Bond Index year-to-date total return was +1.90% while the yield to maturity for the Index closed the day at 5.22%.

Economics

Economic data was very mixed this week.  Consumer confidence continued to drop and details of that report showed that consumers have an increasingly negative view of the future.  However, personal income and spending continue to hold up but it will remain to be seen how much of this spending was pulled forward to get ahead of tariffs.  The initial GDP estimate showed that the economy contracted -0.3% during the first quarter but trade had an outsize impact on that number.  Finally on Friday, the jobs report was better than expected and while the labor market is showing some signs of deterioration it is not yet in contraction and layoffs have yet to become a widespread issue.  Bottom line, it is a very uncertain economic environment and backward-looking data may not be the best indicator of how the economy will behave in the future.  The consumer continues to be the straw that stirs the drink so we will be watching income and spending patterns closely as they have historically gone hand in and hand as the keys to the US consumer-driven economy.

Next week the data is on the lighter side but we will hear from the FOMC on Wednesday.  Interest rate futures are pricing just a 3.2% chance of a cut as we go to print but investors will be listening closely to Jerome Powell’s press conference.  The market is currently pricing the July FOMC meeting as having a relatively high probability (70.8%) for the first cut of 2025.

Flows

According to LSEG Lipper, for the week ended April 30, investment-grade bond funds reported their sixth consecutive weekly net outflow, this time at -$2.2bln.  Total year-to-date flows into investment grade funds remained positive at +$4.15bln.

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.

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.

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.

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.

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.