Josh Adams – Portfolio Manager – Cincinnati Asset Management

12 Sep 2025

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

CAM Investment Grade Weekly Insights

Credit spreads inched tighter again this week as they have remained in a relatively tight 5bp range over the course of the past month. The OAS on the Corporate Index closed at 75 on Thursday September 11^th after closing the week prior at 77. Treasury yields exhibited little change over the past week through Friday morning. The 10yr Treasury yield was 4.07% as we went to print. Through Thursday, the Corporate Bond Index year-to-date total return was +7.31% while the yield to maturity for the index was 4.72%.

News & Economics

Economic highlights this week included PPI and CPI, both of which came within the realm of expectations. Consumer sentiment data released on Friday morning was softer than expected. The economic releases this week did little to derail the prevailing market narrative that the Fed will look to deliver a cut next Wednesday. On Friday morning, interest rate futures were pricing a >100% chance of a 25bp move lower in Fed Funds with a high probability of additional cuts at the October and December meetings. Next week will also bring economic releases for retail sales, industrial production and housing starts.

Primary Market

The primary market was busy again this week as $38bln was priced through Thursday with up to another $1bln looking to price on Friday. This figure was lighter than dealer forecasts of $45-$50bln. Next week syndicate desks are looking for around $30bln of new supply shaded toward Monday and Tuesday. Wednesday FOMC releases are almost always a “no-go” for new supply as issuers prefer to stand down in the wake of the potential rate and spread volatility that can accompany the FOMC post-meeting presser.

Flows

According to LSEG Lipper, for the week ended September 10, investment-grade bond funds reported a net inflow of +$2.7bln. Total year-to-date flows into investment grade were +$45.2bln.

05 Sep 2025

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CAM Investment Grade Weekly Insights

Credit spreads look poised to finish the week tighter, which is a remarkable feat given the deluge of new issue supply during the period. The OAS on the Corporate Index closed at 77 on Thursday September 4^th after closing the week prior at 79. Spreads are a smidge tighter on Friday as we go to print in the late afternoon. Treasury yields are set to finish the week meaningfully lower after another weak jobs report to start the Friday trading session. The 10yr Treasury yield closed last week at 4.23% and it is wrapped around 4.07% on Friday afternoon. Through Thursday, the Corporate Bond Index year-to-date total return was +5.95%.

News & Economics

The big news this week was on Friday morning with the release of the nonfarm payrolls report for the month of August. The BLS report showed that employers added just 22,000 jobs in August while the street was looking for a gain of 75,000. This was the fourth consecutive month of less than 100,000 payroll additions. June payrolls also saw a downward revision which knocked the number for that month into negative territory, making June 2025 the first month of payroll reductions since 2020. Treasury yields moved lower on the back of the release and interest rate futures began to price more than a 100% chance of a 25bp cut when the FOMC convenes on September 17^th. There is still one big datapoint ahead of the September Fed meeting next Thursday with the release of CPI. After several consecutive weak job reports accompanied with lower revisions it feels like inflation would need to come in red-hot in order to derail what is likely to be the first decrease in the Fed’s policy rate since December 2024. Futures are also pricing a high probability of cuts at both the October and December meetings as well (no meeting in November).

Primary Market

It was the busiest week of 2025 for the primary market, which is especially impressive considering Monday was a market holiday. Companies priced more than $67bln of new debt in just three trading days as there was no activity on Friday to make way for the jobs report. 2025’s pace of issuance now just slightly trails 2024 to the tune of -2%. Next week is expected to be another busy one with syndicate desks looking for companies to issue up to $50bln in new debt.

Flows

According to LSEG Lipper, for the week ended September 3, investment-grade bond funds reported a net inflow of +$2.6bln. Total year-to-date flows into investment grade were +$42.5bln.

01 Aug 2025

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

CAM Investment Grade Weekly Insights

Credit spreads finished the week unchanged through Thursday, though the market was 3-4 basis points wider Friday afternoon. The move wider came in sympathy with sharply lower Treasury yields following a weak payroll report on Friday morning. The OAS on the Corporate Index closed at 76 on Thursday evening. The 10yr Treasury yield was little changed through the first four trading days of the week but was 15bps lower following the jobs report. The 2yr Treasury was 24bps lower as investors priced a higher probability of a near term cut by the Federal Reserve. Through Thursday, the Corporate Bond Index year-to-date total return was +4.24% while the yield to maturity for the Index closed the day at 5.07%.

News & Economics

It was a busy week for data as a solid GDP print took the markets by surprise on Wednesday with growth coming in solidly above expectations, however, a closer examination of the numbers showed that most of the headline beat was driven by a reversal in imports and a drawdown in domestic inventories. The purchase component of GDP painted a picture of waning demand. The Fed followed Wednesday afternoon with no change to its policy rate, as expected. In his press conference, Chair Powell continued to emphasize that the labor market was in a good enough position that the FOMC could continue to wait-and-see. With no August meeting on the calendar, the Fed has three major data points to parse following the release of the July labor report this morning: the August jobs report in early September and two inflation reports. The largest market moving print of the week was nonfarm payrolls this morning and there was no way to spin the release in a positive light. It was a weak report with July payrolls missing expectations to the downside accompanied by large downward revisions in the June and May numbers. June was revised to 14k from 147k and May to 19k from 144k. The unemployment rate also ticked higher to 4.2% from 4.1%. Stocks traded sharply lower in the aftermath and Treasury yields followed suit. As we go to print on Friday afternoon, traders were pricing an 86.1% chance of a cut at the Fed’s September meeting while they were pricing just a 39.8% chance the day prior.

Primary Market

It was another typical week for issuance in the midst of earnings season with just $12.2bln of new supply. Next week is expected to be much busier now that most companies have reported earnings with primary dealers looking for $25-35bln of new issuance. YTD new issue volume through week end was $979bln which was +1% ahead of 2024’s pace. It remains to be seen if the risk-off sentiment that was capturing the market on Friday will dissuade IG-rated companies from borrowing next week. We tend to think that they will forge ahead given that the move lower in Treasury yields has more than offset the move wider in spreads making all-in borrowing costs lower than they would have been just a few days ago.

Flows

According to LSEG Lipper, for the week ended July 30, investment-grade bond funds reported a net inflow of +$1.3bln. Total year-to-date flows into investment grade were +$28.5bln.

17 Jul 2025

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

2025 Q2 Investment Grade Quarterly

Second Quarter Recap & Outlook
July 2025

Investment grade credit had another solid quarter of performance during the second period. Credit spreads were volatile during the month of April before grinding tighter into May and throughout June.

Second Quarter Review

The second quarter was tumultuous for risk assets as the “Liberation Day” tariff announcement occurred early in the period on April 2nd. The tariff package went into effect just days later before a 90-day pause was announced on April 9th with an exception for China. Global equities plummeted and credit spreads drifted wider before both steadily retraced into quarter-end. During the second quarter, the option adjusted spread (OAS) on the Bloomberg US Corporate Bond Index tightened by 11 basis points to 83 after it began the quarter at a spread of 94. The spread on the index traded as wide as 119 in early April but IG credit was much better behaved than most other asset classes from a volatility perspective. Remarkably, even given the economic malaise as a result of US trade policy, lower quality BAA-rated IG credit slightly outperformed higher quality AAA & AA-rated credit through the first six months of the year. Intermediate maturities meaningfully outperformed longer duration maturities through the first six months. Shorter Treasury yields moved lower throughout the year but the 30yr bond yield remained elevated.

Year-to-date through quarter end, the 2yr-5yr-10yr Treasury yields had declined by 52, 58 and 34 basis points, respectively. Meanwhile, the 30yr Treasury closed above 5% several times in late May before moving lower in June and finishing the month at 4.77%. Through the end of the second quarter, the 30yr was within less than a full basis point of where it began 2025. One thought as to why intermediate rates have moved lower while the 30yr has been stagnant is that the long end of the Treasury market is driven much more by the outlook for fiscal and monetary policy as well as inflation expectations.

With credit spreads inside of historical averages, coupon income remained an important driver of investor returns through the first six months of the year. Coupon income accounted for 2.32% of the Corporate Index year-to-date total return through June 30th, while price appreciation accounted for 1.81% and other factors contributed 0.04%.

Taking credit spreads and Treasury yields together, the yield to worst on the corporate index finished the quarter at 5% relative to its 10yr average of 3.78%. Credit spreads finished the quarter with an index spread of 83 compared to the 10yr average of 119. While credit spreads look somewhat snug, we believe that this is a classical “buy the yield, not the spread” environment for investors and we continue to believe that investment grade credit offers compelling risk reward for its credit quality and duration.

The Power of Diversification

The volatility of the second quarter provided an excellent example of the usefulness of investment grade credit as a diversifier in asset allocation. Diversification is not necessarily about increasing returns but rather reducing risk and maximizing growth potential over a longer time horizon. One measure of downside protection is “drawdown” which is the return calculated as the percentage decline in value from the previous peak to the subsequent trough. We examined YTD daily returns for a variety of asset classes through the first six months of 2025.

There has been a retracement in all of the above asset classes, but when the news cycle was at its worst and investor fears were at their peak, the impact on investment grade credit was relatively limited compared to riskier assets. It remains to be seen if this retracement is overdone, as the impact of US trade policy on the global economy may not yet have been fully realized. Investment grade corporate bonds have historically produced returns that have limited drawdown while providing advantageous risk adjusted returns during periods of uncertainty.

FOMC Holding Steady (For Now)

The FOMC met twice during the second quarter, in May and June and elected to hold its policy rate steady both times, a continuation of the pattern that has been in place for all four of 2025’s meetings. Four meetings remain this year: July 30, September 17, October 29 and December 10. Although the consensus view of investors is that there will not be a cut at the July meeting, Chairman Powell declined to rule it out at a central bank gathering in Portugal on July 1st. On July 3rd, nonfarm payrolls for the month of June posted a solid beat relative to expectations and the unemployment rate fell. This likely closed the door on the possibility of a July cut. Instead, investors have coalesced around the likelihood of the first cut of the year occurring at the September meeting with Fed Funds Futures pricing a 92.3% probability of a cut at quarter end with those expectations falling to an 68.1% chance on July 3rd after the June payroll report.

At the end of the second quarter futures were pricing -67bps worth of cumulative cuts before the end of 2025. The FOMC took a slightly more hawkish view with the most recent release of the Summary of Economic Projections (dot plot) on June 18th. The Fed dots showed that the median FOMC member was expecting -50bps of cuts in 2025 with one additional -25bp cut in 2026. Investors were meaningfully more dovish than the Fed at quarter end with futures pricing -135bp of cuts through the end of 2026. This translates to 5.4 25bp cuts versus the FOMC median outlook for 3 25bp cuts.

We continue to expect 1-2 cuts in 2025. The labor market has been gradually cooling for some time but it has not shown signs of serious deterioration just yet. If it gets to that point in the cycle then that is when there is more potential for a flurry of cuts from the FOMC as they would likely move quickly to stabilize the economy.

Sentiment Can Change Quickly

With the potential for policy cuts looming on the horizon, the opportunity to invest at elevated yields could be fleeting. When we look back to April, it was rather shocking how swiftly equity markets turned on a dime. Volatility could surge again in the absence of a series of trade deals. Geopolitical issues remain at the forefront in Europe and the Middle East. We will continue to position the portfolio conservatively, with a preference for stable credits that can generate cash during uncertain economic times. Thank you for the trust that you have placed in us.

In the adjacent table you will find portfolio statistics that are representative of a new account for each of our investment strategies. Please contact us with any questions.

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. Index returns and related data such as yields and spreads are 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/.

27 Jun 2025

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

CAM Investment Grade Weekly Insights

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.

20 Jun 2025

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

CAM Investment Grade Weekly Insights

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.

13 Jun 2025

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

CAM Investment Grade Weekly Insights

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.

06 Jun 2025

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

CAM Investment Grade Weekly Insights

Credit spreads were little changed this week. The US Corporate Bond Index closed last week at 88 and it was at the same level when the market closed this Thursday. The 10yr Treasury yield was also nearly unchanged this week through Thursday moving from 4.40% lasts week to 4.39% through Thursday’s close. The benchmark rate had moved up to 4.48% by midday Friday on the back of a “decent” Friday morning payroll report. Through Thursday, the Corporate Bond Index year-to-date total return was +2.53% while the yield to maturity for the Index closed the day at 5.21%.

Economics

There was plenty of economic news this week. JOLTS kicked things off coming in slightly better than expectations. Data showed that job openings increased in April and the March number caught an upward revision. ISM manufacturing missed to the downside for the month of May, remaining in contraction territory. Construction spending posted a big miss to the downside, and was much lower than expected for the month of April. Lousy spring weather could have played a part but so too could tariff related fears, as total construction spending through the April report was down 1.5% relative to the same time period in 2024. ISM services also came in on the low side, and remained in contraction. The price component of ISM release increased however which could be a negative indicator with regard to future inflation readings. Finally on Friday we got some relatively good news for the labor market as the release showed that nonfarm payrolls for the month of May increased by 139k (126k survey) and the unemployment rate remained steady at 4.2%. There were some more bearish economists looking for a sub-100k print. This report likely gives the Fed some room to continue to delay its next cut. On the downside the job numbers for the two previous reports were revised to the tune of -95k which takes some shine off of the numbers from March and April. Taking it altogether it would be fair to say that the data this week continued to paint a picture of a slowing economy but one that is declining in a moderate fashion that looks like more of a soft-landing scenario at this juncture.

Across the pond, the ECB elected to cut its policy rate by 25bps. This makes 200bps of cumulative cuts for the European Central Bank since June of 2024. The ECB is now well ahead of the FOMC’s 100bps of cumulative cuts. Commentary from ECB president Lagarde indicated that central bank is near the end of its cutting cycle.

After two weeks of a bevy of economic releases, next week is on the lighter side, but there are a couple of highlights with CPI and PPI on Wednesday and Thursday, respectively. Looking further ahead, the June FOMC rate decision is on Wednesday the 18^th. Barring an unforeseen exogenous shock over the next dozen days it is all but certain that the Fed will elect to hold rates steady at its June meeting.

Primary Market

It was an active week for the IG primary market but total volume of $26.2bln fell short of the $30bln estimate. New issue concessions remained sparingly narrow as most deals in recent weeks have been priced to perfection. Dealers are looking for $25bln in new supply next week with most activity centered on Monday and Tuesday. Year-to-date issuance through this week stood at $814.7bln which was +4% ahead of 2024’s pace.

Flows

According to LSEG Lipper, for the week ended June 4, investment-grade bond funds reported their largest inflow of the year, a whopping +$4.11bln. Total year-to-date flows into investment grade were +$14.02bln.

30 May 2025

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

CAM Investment Grade Weekly Insights

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.

16 May 2025

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

CAM Investment Grade Weekly Insights

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.

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