Author: Rich Balestra - Portfolio Manager

(Bloomberg)  High Yield Market Highlights

• US junk bonds stalled for a third straight session as yields climbed after data showed consumer confidence collapsed to its lowest level in more than a decade. A measure of consumer sentiment on present conditions slid to a five-year low, reinforcing concerns about a potential economic slowdown. The market racked up the biggest one-day loss in eight sessions.
• The declines gained momentum after Chair Jerome Powell signaled that the Federal Reserve is prepared to keep rates on hold for an extended period. The markets do not expect any rate cuts before June. However, Bloomberg economist Anna Wong suggests that data developments will cut short any pause and the Fed will reduce rates by 100 basis points this year.
• While the market rally lost its momentum this week, pushing yields modestly higher and spreads wider, the primary market rushed to take advantage of still-low risk premiums, attractive yields and strong demand
• The overall economic picture is constructive, though the sentiment is weak, Barclays strategists Brad Rogoff and Dominique Toublan wrote on Friday
• Three new deals priced a total of $2.5b on Thursday, driving the month’s volume to nearly $28b. At close of business today, the issuance volume will close the month at $30b to make it the second busiest January since 2021. It will be the busiest month for supply since September
• The primary calendar is still pretty crowded

(Bloomberg)  Fed Holds Rates as Window for Another Powell Cut Begins to Close

• Jerome Powell has two more opportunities to adjust interest rates before his term as Federal Reserve chair ends — and he may not need them.
• After the Fed kept borrowing costs on hold Wednesday, Powell talked up a “clear improvement” in the US outlook and said the job market shows signs of steadying. It signals a cautious optimism: Fed officials delivered three cuts last fall, and see nothing in the latest data to suggest more are needed to prop up the economy. Futures markets expect no shift in rates before June.
• By then, Powell’s term as chair will have ended and a new one should be in place — likely opening another phase of President Donald Trump’s campaign for lower rates, which has upended the Fed over the past year. In a potential sign of what’s coming, the only two officials who voted for another cut this week were Governor Stephen Miran — on leave at the Fed from his post as a top Trump aide — and Governor Christopher Waller, one of four names on Trump’s shortlist of potential Powell successors.
• “The window for a cut under a Powell-led Fed is essentially closed,” said Stephanie Roth, chief economist at Wolfe Research. “He is more optimistic about the labor market and economy overall than he was.”
• The Federal Open Market Committee voted 10-2 Wednesday to hold the benchmark federal funds rate in a range of 3.5%-3.75%. Waller and Miran dissented in favor of a quarter-point reduction. Officials dropped language pointing to increased downside risks to employment that had appeared in the three previous statements.
• Numbers published since the Fed’s December meeting point to accelerating growth, cooling inflation and steadying employment.
• “The outlook for economic activity has improved, clearly improved since the last meeting, and that should matter for labor demand and for employment over time,” Powell told reporters Wednesday.
• That upgraded assessment of the labor market is likely to hold expectations for a near-term rate cut at bay, despite escalating pressure from the Trump administration. Still, Powell was at pains not to overstate the improvement in the labor market. While it’s shown signs of stabilizing, “I wouldn’t go too far with that,” he said.
• Fed watchers said the mixed messaging suggests policymakers want to keep their options open.
• “You could get whiplash from the various descriptions,” said Tim Mahedy, a former senior adviser at the Federal Reserve Bank of San Francisco.
• On inflation, Powell said the overall story was “modestly positive,” despite his estimate that the Fed’s favored gauge ended 2025 at 3%, a full percentage point above target.
• “Most of the overshoot was in goods prices, which we think is related to tariffs,” he said. “We think those will not result in inflation, as opposed to a one-time price increase.”

(Bloomberg)  Trump Picks a Reinvented Warsh to Lead the Federal Reserve

• News out Friday morning…
• President Donald Trump said he intends to nominate Kevin Warsh to be the next chair of the Federal Reserve.
• Warsh, who served on the US central bank’s Board of Governors from 2006 to 2011 and has previously advised Trump on economic policy, would succeed Jerome Powell when his term at the helm ends in May, if confirmed by the Senate.
• Warsh is currently an adviser at Stanley Druckenmiller’s Duquesne Family Office, a fellow at the conservative Hoover Institution think tank and a lecturer at Stanford Business School.

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 stalled after a two-day rally as jobless claims dropped to a three-year low, suggesting employers are largely holding onto workers. Still, the market is on track for its fourth straight week of gains amid growing expectations of a Fed rate cut next week.
• Yields were unchanged on Thursday, and are now just two basis points above the multi-year low of 6.57%. Spreads closed at a five-week low of 267 basis points and just 11 basis points above the year-to-date low.
• Steadily falling yields and tighter spreads crowded the primary market, with 12 borrowers pricing more than $12b in four sessions this week, the busiest in more than two months.
• Two more borrowers entered the market on Thursday and priced $4b. Both were BB-rated bonds and priced at the tight end of talk. Nine of the 12 deals were BB rated
• The market wobbled across ratings in reaction to the jobless claims data, though CCCs shrugged off the weakness and notched gains for the third straight session. Yields dropped to a five-week low of 9.91% and are poised for a third week of declines
• BB yields jumped nine basis in the past four sessions to 5.60%. Returns are expected to stay flat for the week

(Bloomberg)  Payrolls at US Companies Fall by Most Since 2023, ADP Says

• US companies shed payrolls in November by the most since early 2023, adding to concerns about a more pronounced weakening in the labor market.
• Private-sector payrolls decreased by 32,000, according to ADP Research data released Wednesday. Payrolls have now fallen four times in the last six months. The median estimate in a Bloomberg survey of economists called for a 10,000 gain.
• Wednesday’s weak ADP report risks heightening concerns of a more rapid deterioration in the labor market ahead of the Federal Reserve’s final policy meeting of the year next week. It could hold more sway than usual as one of the few up-to-date reports officials will have by then, as the shutdown delayed the government’s November jobs report.
• Policymakers have been torn as to whether they’ll cut interest rates for a third straight meeting as they attempt to balance the slowdown in the job market with still-elevated inflation. Investors, however, widely expect the Fed to lower borrowing costs next week.
• “I think it’s still probably going to be a pretty divided decision,” said Veronica Clark, an economist at Citigroup Inc. The expectation is there will be a rate cut, but the guidance will be more hawkish, she said, as the Fed will also provide fresh quarterly economic projections at the meeting.
• “Hiring has been choppy of late as employers weather cautious consumers and an uncertain macroeconomic environment,” Nela Richardson, chief economist at ADP and a contributor to Bloomberg Television, said in a statement.
• Professional and business services led the decline in payrolls, followed by information and manufacturing. Hiring in education and health services increased.
• Until recently, economists have largely said the labor market is in a state of low hiring and low firing. But a number of large companies like Apple Inc. and Verizon Communications Inc. have recently cut workers or announced plans to do so, which risks driving unemployment higher.
• The November jobs report from the Bureau of Labor Statistics, originally due Dec. 5, will now come out Dec. 16 as data collection was halted during the record-long shutdown. That report will also include nonfarm payrolls for October since BLS is skipping a full release for that month, as it couldn’t collect certain data retroactively.

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.

• US junk bonds tumbled Thursday, posting their worst one-day loss in nearly five weeks after a chorus of Fed officials warned against premature rate cuts. The slide came just as investors braced for a deluge of economic data, with the government reopening after the longest shutdown in US history.
• Yields jumped the most in five weeks to 6.89% and risk premium climbed to 291 basis points. Losses swept across ratings tier, with CCC yields rising 18 basis points to a near three-month high of 10.29%. Spreads widened 15 basis points, the most in five weeks, to 652.
• As Fed officials signaled caution about future rate cuts, the probability of a rate reduction in December dropped below 50%
• Cleveland Fed President Beth Hammack said it’s critical for the US central bank to reach its 2% inflation target even as the labor marker softens. “We’ve got this persistent high inflation that is sticking around,” she warned
• Louis President Alberto Musalem reiterated that officials should move cautiously over further interest rate reductions with inflation running above the central bank’s 2% target
• Minneapolis Fed President Neel Kashkari said anecdotal evidence and the data showed there is an underlying resilience in economic activity
• The selloff snapped a three-day rally and slowed down the primary market. No new borrower launched a debt sale amid the sudden eruption of volatility
• Before the eruption of volatility on Thursday, the market priced nearly $4b in the two sessions of this holiday-shortened 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 tumbled, posting their steepest one-day loss in three weeks, as the risk premium climbed to 278 basis points after Chair Powell cautioned that a December rate cut is not a foregone conclusion. Yields rose 11 basis points to 6.76%, the biggest one-day jump in three weeks.
• The losses spanned across ratings. CCC yields, the riskiest tier of the high yield market, climbed 14 basis points to 9.84%. Spreads rose 14 basis points to 607 — the biggest one-day widening in three weeks.
• BB yields rose to 5.68% and spreads widened to 168
• The primary market ground to a halt after pricing a modest $4b this week and driving the October tally to about $18b, the slowest month for supply since April

(Bloomberg)  Logan Joins Schmid in Opposing Fed Rate Cut, Citing Inflation

• Two Federal Reserve officials said they did not support the US central bank’s decision to cut interest rates this week, citing inflation that remains too high.
• Dallas Fed President Lorie Logan said she “did not see a need to cut rates this week” in remarks Friday prepared for an event in Dallas. Her comments followed a statement earlier in the day from her Kansas City counterpart, Jeff Schmid, outlining the reasons for his dissent against Wednesday’s rate cut.
• The remarks from Logan and Schmid were the first salvo in what is likely to be an intense debate over the next six weeks before the central bank’s next policy meeting in December, between officials who see a need for more easing to support the labor market and those who are more concerned about inflation.
• “I’d find it difficult to cut rates again in December unless there is clear evidence that inflation will fall faster than expected or that the labor market will cool more rapidly,” Logan said.
• Fed officials cut their benchmark rate this week by a quarter percentage point for a second month in a row after a sharp slowdown in hiring over the summer raised concerns about the labor market. Chair Jerome Powell, speaking to reporters Wednesday after the decision, said another cut in December was not a forgone conclusion, noting that some of his colleagues were concerned about inflation.
• That led to a sharp adjustment in the bond market, where investors had been pricing in near certainty of another quarter-point cut in December.
• While Logan doesn’t vote on monetary policy this year, she participates in Federal Open Market Committee discussions and will rotate onto the voting panel in 2026. Two Fed officials voted against the decision at this month’s meeting, with Schmid preferring to hold rates steady and Governor Stephen Miran dissenting for a second straight meeting in favor of a larger, half-point cut.
• “By my assessment, the labor market is largely in balance, the economy shows continued momentum, and inflation remains too high,” Schmid said in his statement.

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 modest weekly gains after yields fell by a mere two basis points in the last four sessions and risk premium by just five basis points. A resurgence of trade tensions with China and a lack of macro data to assess the state of the economy because of the government shutdown have weighed on sentiment.
• The US junk bond rally also lost some momentum as jittery investors pulled $970m from high-yield mutual funds, excluding exchange-traded funds, for the week ended Wednesday, according to Lipper. This is the second straight week of cash outflows from US junk bond mutual funds, excluding ETFs. The two weeks combined resulted in an outflow of $1.73b.
• While the rally lost steam, participants drew comfort from robust corporate earnings and the potential that the Federal Reserve will reduce interest rates at its meeting next week
• After a sudden burst of issuance this summer and a supply boom that made it the busiest September on record, the primary market has slowed, with issuance almost grinding to a halt
• Just three deals for $2.8b were priced so far this week, taking the month’s volume to about $14b, the lightest since April

(Bloomberg)  US CPI Rises Less Than Expected, Keeping Fed on Track to Cut

• Underlying US inflation rose in September at the slowest pace in three months, keeping the Federal Reserve on course to lower interest rates next week.
• The core consumer price index, excluding the often volatile food and energy categories, increased 0.2% from August, according to Bureau of Labor Statistics data out Friday. That was restrained by the smallest increase in a key measure of housing costs since early 2021.
• The September CPI report was initially scheduled to come out on Oct. 15 but was delayed because of the ongoing federal government shutdown. While most BLS operations have ceased since the Oct. 1 closure, the agency recalled staff to prepare this release so the Social Security Administration could tally its annual cost-of-living adjustment.
• The lower-than-expected reading is a welcome surprise, especially for several Fed officials who are leery of cutting rates further. While the central bank was already widely expected to lower borrowing costs at its meeting next week, the report may help convince policymakers that they can do so again in December — especially in the absence of other official reports should the shutdown continue.
• Goods prices, excluding food and energy commodities, rose at a slower pace, dragged down by cheaper prices for used cars. Categories that are more exposed to tariffs, including household furnishings and recreational goods, advanced. Apparel prices climbed at the fastest rate in a year.
• Services prices excluding energy climbed 0.2%, in part reflecting a slower advance in airfares. Shelter prices were tame after rising by the most since the start of the year in the prior month. That included just a 0.1% increase in owners’ equivalent rent — which accounts for roughly a quarter of the overall CPI.
• While the inflationary impact of tariffs has been much less than many economists feared, several forecasters and policymakers are still wary that the duties will continue to put upward pressure on prices — which was evident in some private-sector gauges of inflation in September. President Donald Trump’s latest tariffs, aimed at household goods like kitchen cabinets and upholstered furniture, took effect earlier this month, and retailers like RH have warned of price increases to come.
• Companies across the country have largely reported higher input costs due to tariffs in recent weeks, but the hit to consumers has been uneven, the Fed said in its latest Beige Book survey of regional business contacts. Procter & Gamble Co. is now expecting a more muted impact from tariffs and commodity prices, while O’Reilly Automotive Inc. said they adjusted selling prices to account for the increase in tariff-related costs.

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 were broadly resilient as they shrugged off concerns about credit quality after Zions Bancorp disclosed a charge-off for a bad loan at a subsidiary tied to alleged fraud. Junk bond yields held steady and spreads moved in tandem with five-year US Treasury yields even as equities churned on worries about regional banks soon after the First Brands Group collapse.
• While high yield spreads closed at 6.76%, just two basis points higher, leading to a modest loss of 0.3% on Thursday. The high yield market is set for weekly gains, with week-to-date returns at 0.56%, the most since the week ended June 27
• CCC yields were still far below 10%, closing at 9.87%, and spreads closed at 627 basis points
• BB yields barely moved and closed at 5.72%, while spreads closed at 185 basis points. BBs are also headed for a weekly gain, with week-to-date returns at 0.54%
• The markets, while struggling to assess the impact of the US-China trade war and broader credit quality in the wake of the regional bank scare, shifted their attention to widely expected interest-rate cuts after Chair Powell signaled that the Federal Reserve is set to deliver a quarter-point reduction at its meeting later this month. Speculation that the Fed will lower interest-rates twice this year fueled optimism about corporate earnings.
• The primary market is steady and investors are still hungry for new paper.

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

• New bond sales in the US junk bond market soared past $48b this month to make it the busiest September ever, surpassing September 2020’s $47b. Issuers have priced $17.5b so far this week, the busiest week in five years. The last time the market was more active was the $18.3b notched in the week ended Sept. 18, 2020.
• The supply boom has persisted from early summer, bolstered by attractive yields, tight spreads and a relatively resilient economy against the backdrop of easier interest-rate policy.
• Four more borrowers tapped the market on Thursday for $4.5b, while 18 companies sold bonds this week. This has also been the busiest month overall for issuance since April 2021. It’s on track to be among the top five months on record for new issuance.
• The unrelenting supply tide caused pressure on yields and prices on Thursday, slowing the broad rally that began last week. Gains stalled across ratings amid the huge wave of supply.
• Yields jumped 10 basis points, the largest one-day increase in more than three weeks, to 6.72%. Spreads widened to 266 basis points, driving the biggest one-day loss in three weeks
• BB yields climbed eight basis points to 5.73%, a three-week high, prompting a loss of 0.22% on Thursday, the most in three weeks. Spreads closed at 166 basis points. CCC yields advanced 12 basis points to cross the 10% mark and close at 10.09%, a two-week high. That fueled a loss of 0.35%, the largest in eight weeks and the most in the high yield market on Thursday.

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 tumble to a new multi-year low and risk premium drops to a seven-month low driving gains for the seventh consecutive week, the longest winning streak since last September. Yields closed at 6.57%, also falling for the seventh week in a row.
• The broad rally extended across ratings in the US junk bond market on renewed bets that easing interest-rate policy by the Federal Reserve will bolster corporate earnings and growth. The gains spanned across all risk assets as equities hit all-time highs. CCC yields, the riskiest tier of the high yield universe, dropped below 10% for the fourth time in three weeks and are near a six-month low at 9.96%. CCCs have risen to the top again with 0.23% returns on Thursday, the best performing asset class in the US high yield market.
• The market expectations of at least two more 25 basis points cut this year and one 25 basis point cut each in 2026 and 2027 are in line with Federal Reserve’s dot plot projections driving risk assets across the board
• BB yields also plunged to a multi-year low of 5.59% and spreads fell to a more than 10-week low spurring gains for the seventh successive week
• Plunging yields, falling risk premium, and a still steady economy against the backdrop of Fed’s easing interest-rate policy, fueled a supply surge as the week is set to close with nearly $12b in new bonds, the busiest since the week ended Aug. 8. Leaving aside the last two weeks of a summer lull, the primary market has seen supply of $9b+ for five straight weeks
• Credit remains unshaken, bolstered by persistent technical strength, Barclays strategists Brad Rogoff and Dominique Toublan wrote on Friday. With the market seemingly rangebound at tight levels, identifying areas of dispersion and catalyst-driven opportunities remains key, they added

(Bloomberg)  Fed Cuts Rates by Quarter-Point; Powell Cites Weakness in Jobs

• Federal Reserve officials lowered their benchmark interest rate by a quarter percentage point and penciled in two more reductions this year following months of intense pressure from the White House to slash borrowing costs.
• Chair Jerome Powell pointed to growing signs of weakness in the labor market to explain why officials decided it was time to cut rates after holding them steady since December amid concerns over tariff-driven inflation.
• “Labor demand has softened, and the recent pace of job creation appears to be running below the break-even rate needed to hold the unemployment rate constant,” Powell told reporters. He added, “I can no longer say” the labor market is “very solid.”
• Powell also signaled ongoing concern over inflation pressures resulting from tariffs. “Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem,” he said.
• Looking ahead at the outlook for additional rate moves, Powell was cautious, saying the Fed was now in a “meeting-by-meeting situation.”
• In their post-meeting statement, policymakers acknowledged that inflation has “moved up and remains somewhat elevated,” but also pointed to worries over jobs. Officials said the unemployment rate had “edged up,” and the “downside risks to employment have risen.”
• The cut was widely expected amid signs the central bank’s concerns are shifting toward employment and away from inflation, following a sharp slowdown in hiring over the last several months.
• Policymakers also updated their economic projections at this meeting and now see two additional quarter-point cuts this year. That’s one more than projected in June. They foresee one quarter-point cut in 2026 and one in 2027.

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 sixth week of gains, with yields tumbling to a fresh 40-month low of 6.60% and spreads returning to the six-month low of 268 basis points, spurred by expectations of Federal Reserve policy easing. The high yield market notched up gains in three of the last four sessions.
• The rally spanned the risk spectrum and gained momentum after jobless-claims data on Thursday reinforced signs of weak labor market and fueled bets that the Fed will cut rates next week. BB yields, the best of the junk bond market, plunged to near a 40-month low of 5.61% and are on track for a sixth week of declines, the longest streak since December 2023. BBs have returned 0.42% returns so far this week, the most in more than two months.
• Risk assets traded with strong bias as macro data broadly supported expectations of a Fed cut next week, Barclays strategists Brad Rogoff and Dominique Toublan wrote in a note published Thursday
• While technicals remain supportive, valuations are increasingly asymmetric, and the risk of spread widening into 4Q is rising, the wrote
• CCC yields, the riskiest segment of the high yield market, fell below 10%. Spreads tightened 10 basis points on Thursday, the most in two weeks, to 613 basis points
• Single B yields also fell to a fresh 40-month low of 6.53% and spreads closed at 261 basis points prompting gains for the sixth straight week
• Attractive yields, tight spreads, strong demand and expectations of easing interest rates spurred a supply surge in the primary market
• Twelve borrowers sold nearly $9.5b this week so far and this will be the third consecutive week of more than $9b in supply
• September volume stands at $19b

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.