Author: Rich Balestra - Portfolio Manager

(Bloomberg)  High Yield Market Highlights

• US junk bond yields plunged to a new six-month low and spreads still hovered near a more than three-month low driving supply to nearly $33 billion in June, the busiest month for new bonds sales since September.
• Yields fell 21 basis points in four sessions and declined for five straight weeks to close at 7.09%, the lowest since December.
• The rally across risk assets was fueled by easing concerns about immediate geopolitical tensions and on expectations that the Federal Reserve will begin rate cuts as data showed US consumer confidence fell unexpectedly and new home sales dropped the most since 2022 on poor affordability. The speculation about rate cuts gained legs after Fed revised its growth forecast for 2025 to 1.4%, down from 1.75% earlier.
• The broad rally in the US junk bond market gained momentum after investors poured cash into the asset class. US junk bonds took in a cash haul of $3.46b for week ended June 25, the biggest weekly inflow since November 2023. This is the ninth consecutive week of cash inflows into high yield funds
• In the primary market, the week’s supply was more than $8b. The June tally is $32.85b
• Barclays revised its 2025 supply forecast downward saying they expect a vast majority of issuance to be refinancings
• The recent gains in the US high-yield market extended across ratings. BB yields, the top tier in the high-yield universe with low risk of default, dropped to close at an eight-month low of 5.93% driving gains for six straight sessions
• Single B spreads closed at 280 basis points, still floating near a six-month low. Yields closed at a new year-to-date low of 7%

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.

(Bloomberg)  High Yield Market Highlights

• US junk bond yields held steady, with spreads still at a three-year low fueling a wave of new bond sales to push June’s tally to nearly $22b. That’s already 23% more than the full month of June 2024 and up almost 70% on June 2023.
• The market awaits the pricing of a $5b, five-year debt sale by Elon Musk’s xAI, split into loans and bonds. Pricing and allocation expected sometime later today.
• As yields held steady and with spreads still hovering near 300 basis points, the primary market is inundated with supply, driving the week’s volume to nearly $6b
• The junk bond rally lost some momentum on Wednesday after Fed Chair Jerome Powell indicated that the impact of tariffs on prices will show up later this summer
• Fed’s new forecasts showed weaker growth, higher inflation and higher unemployment. This prompted Fed officials to project two rate cuts this year
• The gains across the high yield market are modest even as junk bonds head for a fourth week of gains

(Bloomberg)  Fed Officials Hold Rates Again, Still See Two Cuts by Year End

• Federal Reserve officials continued to pencil in two interest-rate cuts in 2025, though new projections showed a growing divide among policymakers over the trajectory for borrowing costs as tariffs make their way through the US economy.
• The Federal Open Market Committee voted unanimously on Wednesday to hold the benchmark federal funds rate in a range of 4.25%-4.5%, as they have since the beginning of the year. They also released new economic forecasts — their first since President Donald Trump unveiled a sweeping set of tariffs in April — showing they expect weaker growth, higher inflation and higher unemployment this year.
• Speaking to reporters following the decision, Chair Jerome Powell repeated his view that the central bank was “well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.”
• Interest-rate projections released alongside the decision show a split: Seven officials now foresee no rate cuts this year, compared with four in March, and two others pointed to one cut. At the same time, 10 officials expect it will be appropriate to lower rates at least twice before the end of 2025.
• In the run-up to this month’s meeting, many officials signaled their preference to hold rates steady for some time as they wait for clarity on how Trump’s economic policies will affect inflation and the broader economy.
• Asked about the division in officials’ rate projections, Powell downplayed it. Given the high level of uncertainty in the economy, he said, “No one holds these rate paths with a lot of conviction.”
• In their updated economic forecasts, officials raised their median estimate for inflation at the end of 2025 to 3% from 2.7%. They marked down their forecast for economic growth in 2025 to 1.4% from 1.7%.
• They forecast an unemployment rate of 4.5% by the end of the year, up slightly from their previous estimate.
• The projections reflected the thorny situation facing Fed policymakers.
• Growing inflationary pressures typically suggest the Fed policy should restrain the economy with elevated rates, while weakening growth calls for stimulus through lower rates. Trump this year has repeatedly pushed for the Fed to cut rates, arguing the central bank under Powell has often been late to adjust policy.
• Neither employment nor inflation data have yet shown a substantial impact from tariffs. A measure of underlying consumer inflation rose in May by less than forecast, spurring Trump to renew his call for lower rates.
• Powell said the committee continued to expect tariffs to work their way into final prices, but that it would take time.
• “Ultimately the cost of the tariff has to be paid and some of it will fall on the end consumer,” he said. “We know that because that’s what businesses say, that’s what the data say from the past.”
• “We know that’s coming and we just want to see a little bit of that before we make judgments prematurely,” he added.

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.

(Bloomberg)  High Yield Market Highlights

• US junk bonds may snap a 13-day gaining streak after Israel’s strikes on Iran’s nuclear sites sparked a flight to haven assets, including US Treasuries and gold. US equity futures retreated as investors await Iran’s response amid concern the conflict could widen.
• US junk bond yields held steady at 7.36% on Thursday, and spreads were range-bound, closing at 306 basis points and pushing positive returns for the 13th consecutive session. The primary market has slowed down after a torrid pace of issuance drove supply to nearly $16b so far this month.
• The modest gains in the US junk bond market extended across ratings. CCC yields fell 10 basis points to 11.28% on Thursday. Spreads closed lower at 710, fueling small gains for the second session in a row
• BB yields closed flat at 6.14% and spreads closed at 183, driving positive returns for the fourth straight session
• The rally in the US high yield market was partly prompted by renewed bets that the Federal Reserve will cut rates twice this year as inflation moderates. It was also fueled by cash inflows into the asset class
• Credit continues to benefit from strong demand, Barclays strategists Brad Rogoff and Dominique Toublan wrote in note this morning. Current backdrop remains supportive for credit, and expect valuations to remain steady in the near term, they wrote
• Steady returns, attractive yields, and cash inflows into the asset class drove primary market supply
• The pipeline is building as borrowers stream in to take advantage of strong demand for yield

(Bloomberg)  US Core Inflation Rises Less Than Forecast for Fourth Month

• Underlying US inflation rose in May by less than forecast for the fourth month in a row, suggesting companies are largely holding back on passing higher tariff costs through to consumers.
• The consumer price index, excluding the often volatile food and energy categories, increased 0.1% from April, according to Bureau of Labor Statistics data out Wednesday. From a year ago, it rose 2.8%.
• Goods prices, excluding food and energy commodities, were unchanged. New and used-car prices both declined, as did apparel. Meanwhile, services prices minus energy rose 0.2%, a deceleration from the prior month and reflecting a decline in airfares and hotel stays.
• Treasuries rallied, the dollar declined and the S&P 500 opened higher after the report. Interest-rate swaps showed traders see a 75% probability that the Federal Reserve will cut borrowing costs by September.
• The string of below-forecast inflation readings adds to evidence that consumers have yet to feel the pinch of President Donald Trump’s tariffs — perhaps because the most punitive levies have temporarily been on pause, or thanks to companies so far absorbing the extra costs or boosting inventory ahead of tariffs.
• However, if higher tariffs set in, shielding consumers from those costs will become more difficult, which is partly why economists expect firms to raise prices more meaningfully in the coming months.
• “The build-up of inventory in advance of the tariff hikes may be contributing to delayed pass through, while huge uncertainty in US trade policy may have affected the speed with which firms wish to adjust prices,” Brian Coulton, chief economist at Fitch Ratings, said in a note. “But a rise in core goods inflation in the months ahead still looks very likely.”

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.

(Bloomberg)  High Yield Market Highlights

• US junk bonds are headed for the second consecutive week of gains after eight straight sessions of positive returns, the longest winning streak since August of last year. Yields still hovered near a three-month low and spreads near 300 basis points. The broad rally is spurred partly expectations that Federal Reserve may lower interest rates sooner than previously expected on weaker-than-expected data.
• The gains are also fueled by steady cash intake by US high yield funds. These funds report an inflow of $1.5b for week ended June 4, the sixth successive week of cash inflows for these funds, according LSEG Lipper.
• Steady cash inflows into high yield funds, attractive yields and relatively low risk premium as reflected in spreads, inundated the primary market with 13 borrowers selling $13.25b this week, the busiest since week ended May 10, 2024
• Strong demand for higher yields is expected to drive supply in the coming weeks.
• The broad rally in the US junk bond market spanned across ratings, with the exception of CCCs, the riskiest part of the market
• BB yields also hovered near a three-month low and spreads closed at 180 basis points, posting gains for the eighth straight session, also the longest since August
• Single B yields were at 7.32% and spreads at 295 pushing returns for eight straight sessions as the week comes to close

US Jobs Report Points to Gradual Moderation in Labor Market

• US job growth moderated in May and the prior months were revised lower, indicating employers are cautious about growth prospects as they weigh the Trump administration’s economic policy.
• Nonfarm payrolls increased 139,000 last month after a combined 95,000 in downward revisions to the prior two months, according to Bureau of Labor Statistics data out Friday. The unemployment rate held at 4.2%, while wage growth accelerated.
• The payrolls figure, which was slightly better than expectations, helps alleviate concerns of a rapid deterioration in labor demand as companies contend with higher costs related to tariffs and prospects of slower economic activity. President Donald Trump’s decision to pause some of the more punitive import duties, including those on China, has helped lift sentiment among businesses as well as consumers.
• “Employers have been ‘hoarding labor’ in the face of massive corrosive uncertainty,” Carl Weinberg, chief economist at High Frequency Economics, said in a note. “It costs money to fire workers, and we believe firms have been reluctant to lay off workers until they saw the extent of the Trump tariffs.”
• Treasury yields rose, the S&P 500 opened higher and the dollar appreciated as traders trimmed bets the Federal Reserve will lower interest rates this year.
• The labor market report wraps up a week of disappointing economic data that included a further increase in applications for jobless benefits and weaker services activity.
• The advance in payrolls reflected strength at service providers, including health care and social assistance as well as leisure and hospitality.
• At the same time, industries that are more exposed to tariffs flashed warning signs. Manufacturing payrolls dropped 8,000 last month, the most this year, while employment growth in transportation and warehousing rose slightly after declining in each of the prior two months. Employment at temporary-help agencies fell by the most since October.
• The household survey, meanwhile, showed a 254,000 increase in the number of people who went from employed to out of work during the month. That was the biggest rise since the start of 2022.
• Another major question for economists and policymakers is the extent to which Trump’s efforts to cut back on government spending will take a toll on employment. The federal government shed 22,000 jobs in May, the most since 2020.
• Economists contend that at least half a million US jobs could be on the line as federal spending cuts spread to contractors, universities and others who rely on public funding.
• “Cracks in the façade of labor market resilience are now starting to show and the longer the tariff uncertainty and government spending cuts continue the worse the labor market reports are bound to be,” Scott Anderson, chief US economist at BMO Capital Markets, said in a note.
• The reports showed the size of the labor force shrank by the most since the end of 2023, helping keep the jobless rate steady even as more people became unemployed.
• The participation rate — the share of the population that is working or looking for work — fell to a three-month low of 62.4% in May. The rate for those between the ages of 25 and 54, known as prime-age workers, also declined.
• For the Fed, officials have indicated they’re in no rush to cut rates until they get further clarity on the impact the administration’s policies will have on the economy — including the labor market. Research by the New York Fed showed this week that as local companies begin dealing with higher costs from Trump’s trade policy, there were “some signs that the sharp and rapid increase in tariffs affected employment levels and capital investments.”

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.

(Bloomberg)  High Yield Market Highlights

• US junk bonds shrugged off a jump in jobless claims and recurring benefits to rally for a third straight session. Yields and spreads also dropped for the third day to close at 7.46% and 311 basis points, respectively.
• Attractive all-in yields and still tight spreads have revived the primary market this month after it slowed to a near halt in April. Two more borrowers — oil and gas company Civitas Resources and Goodyear Tire — sold more than $1.2b on Thursday, taking May’s tally to $31b, the busiest month for supply since September 2024.
• Strong risk appetite accompanied by huge demand is expected to bring more supply in the coming weeks.
• The broad gains extended across ratings as the markets looked past the Federal appeals court’s decision to allow US tariff policy to continue, temporarily blocking a ruling that threatened to throw out Donald Trump’s tariff agenda.
• CCC yields, the riskiest part of the junk bond market, tumbled 37 basis points in three sessions this week to close at 11.06%, a two-week low. Spreads dropped 34 basis points this week to 680. Falling yields and tightening spreads drove gains for three sessions in a row.
• BB yields fell 18 basis points in three sessions to 6.24% and spreads tightened 15bps to 187. BBs notched up gains for three successive sessions.
• As the week closes, US junk bonds may slow amid cautious sentiment, with equity futures struggling to advance given uncertainty over tariff policies and ahead of more macro data.

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.

(Bloomberg)  High Yield Market Highlights

• US junk bonds are headed for their fifth weekly gain on easing trade tensions and signs of a still-resilient economy. The rally was also fueled by bets that the Federal Reserve will cut interest rates at least twice this year after data showed tariffs have had limited impact on inflation so far.
• Falling spreads and attractive all-in yields attracted a flood of new debt to the primary market. Eleven borrowers sold more than $11b in just four sessions to make it the busiest week since January. Total supply this month is at $19b.
• The Index yield is set to drop for the fifth straight week, the longest streak since September. It declined 26 basis points in four sessions this week to 7.48%. The Index risk premium fell for the sixth consecutive week, the longest streak in 17 months. It closed at 309 after falling 34 basis points so far this week.
• The broad gains extended across ratings. CCC yields are on track to drop for the fifth straight week after closing at 11.11% on Thursday. Yields fell 19 basis points in four sessions this week. CCCs are also set to post fifth weekly gains.
• BB yields are also poised to fall for the fifth successive week after closing at 6.29% on Thursday, down 18 basis points in four sessions. Spreads tightened for the sixth consecutive week to close at 190 basis points, the longest declining streak in more than four years
• Meanwhile, investors flocked to new issues with big orders following light supply after a frozen market in April and three straight weeks of cash inflows into US high yield funds. US high yield funds reported a cash intake of $2.6b for week ended Wednesday, according to LSEG Lipper
• More borrowers are expected to take advantage of the broad market rally next week

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.

(Bloomberg)  High Yield Market Highlights

• US junk bonds are headed for their third weekly gain with each ratings cohort participating
• US high yield funds attracted $2.5b of inflows for week ended Wednesday, the most since July, wrote JPMorgan citing LSEG data.
• US junk bond yields moved 1basis point higher to 7.81% this week with the spread moving 7 basis points wider to 368
• CCCs, the riskiest tier of the junk bond market, was the best performer, gaining 0.13%. CCCs are set to post gains for the third consecutive week
• BB spreads widened 7 basis points to 239 and yields moving 2 basis points higher to 6.53%. The segment is also on track to record positive returns for the third week in a row.
• April was the slowest month for supply since July. However, there was a broad rally across risk assets on Thursday that revived the primary market seeing a combined $2b in new bonds price to kick off the new month

(Bloomberg)  US Payroll Gain of 177,000 Shows Uncertainty Yet to Dent Hiring

• US job growth was robust in April and the unemployment rate held steady, suggesting uncertainty over President Donald Trump’s trade policy has yet to have a material impact on hiring plans.
• Nonfarm payrolls increased 177,000 last month after the prior two months’ advances were revised lower, according to Bureau of Labor Statistics data out Friday. The unemployment rate was unchanged at 4.2%.
• The report suggests the labor market continues to cool gradually, a sign that businesses facing heightened uncertainty around tariffs and turmoil in financial markets didn’t significantly alter their hiring plans. Most economists anticipate the brunt of the impact from punishing levies will be seen in coming months.
• “This is a good jobs report all around. The ‘R’ word that the labor market is demonstrating in this report is resilience, certainly not recession,” Olu Sonola, head of US economic research at Fitch Ratings, said in a note. “For now, we should curb our enthusiasm going forward given the backdrop of trade policies that will likely be a drag on the economy.”
• Fed officials have indicated they’re in no rush to cut rates until they get further clarity on the impact the administration’s policies will have on the economy, and are widely expected to leave their benchmark unchanged when they next meet May 6-7 despite a report Wednesday showing inflation decelerated in March.
• Payroll gains were broad based, led by an advance in health care. Transportation and warehousing employment rose by the most since December, suggesting a surge in imports and activity boosted demand for labor as businesses rushed to get ahead of tariffs. Manufacturing, meanwhile, shed jobs as the sector saw the steepest contraction in output last month since 2020.
• The federal government cut jobs for a third month — the longest such streak since 2022 — reflecting efforts by the Elon Musk-led Department of Government Efficiency to downsize the federal workforce and reduce government spending.
• The government leads all US industries in terms of layoffs announced so far in 2025, with the vast majority of the about 282,000 cuts being attributed to DOGE actions, outplacement firm Challenger, Gray & Christmas said in a report Thursday. Economists contend at least half a million US jobs could be on the line as federal spending cuts spread to contractors, universities and others who rely on government funding.
• The participation rate — the share of the population that is working or looking for work — ticked up to 62.6% in April. The rate for those between the ages of 25 and 54, known as prime-age workers, rose to the highest level in seven months
• Economists are also paying close attention to how labor supply and demand dynamics are impacting wage gains — especially with inflation risks heating up again. The report showed average hourly earnings rose 0.2% last month, marking a deceleration from March. From a year earlier, they rose 3.8%.
• Other data are pointing to a more marked deterioration in labor-market conditions. Job openings fell in March to the lowest level since September, and a report on private hiring showed employers added the fewest payrolls in nine months in April.
• Economists largely expect layoffs to pick up in the coming months as economic uncertainty puts a halt on expansion plans.

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.

(Bloomberg)  High Yield Market Highlights

• US junk bonds shrugged off equity volatility to notch up gains for the fifth straight session.
• The junk market printed a weekly gain, rebounding from last week’s losses. Yields dropped 43 basis points for the week to close at 8.19%, the biggest weekly decline since December 2023.
• The junk bond market on Wednesday brushed aside Powell’s warnings that he expects unemployment and inflation both to be heading away from the Fed’s goals for the balance of the year
• The market also overlooked Powell’s emphasis that the central bank is well-positioned to wait for greater clarity on tariffs before making adjustments to the current monetary policy, dashing expectations of a rate cut soon
• The broad rally in the US junk bond market extended across ratings. BB yields dropped for the fifth consecutive session declining 35 basis points this week. B yields dropped 44 basis points. CCC yields dropped 63 basis points.
• The primary market stayed quiet after LNG producer Venture Global braved the volatile market and took advantage of the rally this week
• The continuing tariff volatility and broad risk aversion have brought the primary market to a halt
• The market turmoil brought back unpleasant memories of 2022, when Wall Street banks were stuck with huge debt on their balance sheets as planned leveraged buyouts could not come to fruition after an unexpected and steep rate hike
• Wall Street lenders were stuck with $2.2b in debt provided to fund Apollo’s acquisition of a Canadian auto parts company, after being unable to sell loans and bonds before the deal closed
• The market is also watching the status of debt deals related to acquisitions that are set to close this month

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.

(Bloomberg)  High Yield Market Highlights

• US junk bonds are headed for their third weekly loss after dropping in five of the last six sessions, spurred by US tariffs and the continuing trade war with China. Yields surged 32 basis points in four sessions this week, the third consecutive week of rising yields.
• The euphoria after President Trump agreed to a 90-day pause of reciprocal tariffs on dozens of trading partners was short-lived. US high-yield funds reported an outflow of $9.6 billion, the biggest since 2005.
• The losses accelerated after a bevy of Fed officials repeatedly asserted that tariff-driven inflation would delay interest-rate cuts
• “Given the paramount importance of keeping long-run inflation expectations anchored and the likely boost to near-term inflation from tariffs, the bar for cutting rates even in the face of a weakening economy and potentially increased unemployment is higher,” Minneapolis Fed President Neel Kashkari wrote in an essay released Wednesday morning. “The hurdle to change the federal funds rate one way or the other has increased due to tariffs”
• “To sustainably achieve both of our dual-mandate goals, it will be important to keep any tariff-related price increases from fostering more persistent inflation,” Dallas Fed President Lorie Logan said Thursday in prepared remarks for an event at the Dallas Fed. “For now, I believe the stance of monetary policy is well positioned,” she added
• “Renewed price pressures could delay further policy normalization, as confidence is needed that the tariffs are not destabilizing inflation expectations,” Boston Fed President Susan Collins said in remarks prepared for an event Thursday at Georgetown University in Washington
• The rapid onslaught of conflicting news will likely persist, causing ongoing volatility in the markets, Barclays strategists Brad Rogoff and Dominique Toublan wrote this morning
• Furthermore, there are still structural questions to be answered. The overall current level of tariffs for the next 90 days is still higher than 20%, they added
• The losses extended across the ratings spectrum, with BB yields hovering near a 16-month high and up 31 basis points in the last four sessions. This will be third straight week of rising yields
• CCCs, the riskiest tier of the junk bond market, is also poised to notch up losses for the third week in a row, the longest losing streak in 12 months
• CCC yields rose 71 basis points so far this week to close at 12.80%, set for its third successive weekly advance
• While the US paused reciprocal tariffs on some countries, the tariffs on steel, aluminum and automobiles stay at current rates
• Tariff volatility, rising yields and widening spreads brought primary market to a screeching halt

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.