Author: Rich Balestra - Portfolio Manager

(Bloomberg)  High Yield Market Highlights

• US junk bonds gained for the second session in a row, pushing yields down 10 basis points to a three-week low after Fed Chair Powell indicated on Wednesday that a hike in interest-rates was unlikely. However, he also suggested that higher-than-expected inflation readings have reduced the central bank’s confidence that price pressures are easing.
• The US high-yield market is headed toward a second week of positive returns, partly fueled by Chair Powell’s reiteration that the Fed is not mulling a hike in rates, while also expressing hopes that rate cuts could happen later in the year.
• The broader junk bond index yields dropped to 8.01% , falling 12 basis points week-to-date, the second straight week of decline
• BBs notched up gains of 0.37% on Thursday, the strongest one-day returns since December and on track for a second consecutive week of gains. The week-to-date advance is 0.56%, the most in six weeks
• BB yields dropped nine basis points on Thursday to 6.77%, and 11 basis points week-to-date
• Single B yields also slid 11 basis points week-to-date to 7.85%, driving gains of 0.49%
• CCC yields fell 19 basis points on Thursday to 12.29% and 13 basis points week-to-date. Tumbling yields drove gains of 0.44% in the first four days
• The primary market resumed normal business after the Fed meeting, pricing $1.3b on Thursday amid strong economic data, attractive all-in yields and tight spreads

(Bloomberg) US Jobs Post Smallest Gain in Six Months as Unemployment Rises

• US employers scaled back hiring in April and the unemployment rate unexpectedly rose, suggesting some cooling is underway in the labor market after a strong start to the year.
• Nonfarm payrolls advanced 175,000 last month, the smallest gain in six months, a Bureau of Labor Statistics report showed Friday. The unemployment rate ticked up to 3.9% and wage gains slowed.
• Friday’s report signaled further evidence that demand for workers is moderating, but the data likely don’t amount to “an unexpected weakening” that Federal Reserve Chair Jerome Powell said would warrant a policy response.
• After holding interest rates steady for a sixth straight meeting this week, Powell said he thinks policy is restrictive as seen by weaker demand for labor, though it still exceeds the supply of available workers. As inflation has largely receded from its 2022 peak, officials are now also focused on ensuring maximum employment, he said Wednesday.
• Treasury yields and the dollar fell, while stock futures rose after the report.
• Aggregate weekly payrolls, a broad measure of employment, hours and earnings, were unchanged from a month earlier. That snapped three straight years of monthly advances and, if sustained, raises the risk of a downshift in consumer demand.
• The very gradual cooling in hiring and wage growth is part of the reason why policymakers have indicated they’re in no rush to bring interest rates down from a two-decade high.
• The participation rate — the share of the population that is working or looking for work — held steady at 62.7%. The rate for workers aged 25-54 ticked up to 83.5%, matching the highest level in two decades. Increased participation will help to restrain wage growth.

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 extended their decline Thursday, logging their biggest one-day loss in the more than a week as slowed economic growth and a higher inflation rating curbed soft-landing hopes.
• Yields jumped 10 basis points to 8.21%, though they still remain lower for the week
• Ahead of today’s PCE reading, the inflation component in the 1Q GDP report fueled worries the Federal Reserve may further delay rate cuts to late this year
• BB yields climbed 8 basis points to 6.96% as such notes lost27%
• Single B yields jumped 12bps to 8.03%, with a loss of 0.3%
• CCCs also lost 0.3%, though yields rose just 3bps to 12.55%
• Tight spreads against the backdrop of a resilient economy continues to draw new bond sales
• This month’s supply is at $24b, up 28% from the full month of April 2023

(Bloomberg)  US Economy Slows and Inflation Jumps, Damping Soft-Landing Hopes

• US economic growth slid to an almost two-year low last quarter while inflation jumped to uncomfortable levels, interrupting a run of strong demand and muted price pressures that had fueled optimism for a soft landing.
• Gross domestic product increased at a 1.6% annualized rate, below all economists’ forecasts, the government’s initial estimate showed. The economy’s main growth engine — personal spending — rose at a slower-than-forecast 2.5% pace. A wider trade deficit subtracted the most from growth since 2022.
• A closely watched measure of underlying inflation advanced at a greater-than-expected 3.7% clip, the first quarterly acceleration in a year, the Bureau of Economic Analysis report showed Thursday.
• The figures represent a notable loss of momentum at the start of 2024 after the economy wrapped up a surprisingly strong year. With the inflation pickup, Federal Reserve policymakers — who were already expected to hold interest rates at a two-decade high when they meet next week — may face renewed pressure to further delay any cuts and even to consider whether borrowing costs are high enough.
• “The hot inflation print is the real story in this report,” Olu Sonola, head of US economic research at Fitch Ratings, said in a note. “If growth continues to slowly decelerate, but inflation strongly takes off again in the wrong direction, the expectation of a Fed interest rate cut in 2024 is starting to look increasingly more out of reach.”
• The first-quarter pickup in inflation was driven by a 5.1% jump in service-sector inflation that excludes housing and energy, nearly double the prior quarter’s pace.
• Stripping out inventories, government spending and trade, inflation-adjusted final sales to private domestic purchasers — a key gauge of underlying demand — rose at a 3.1% rate.
• The GDP report showed outlays for services rose by the most since the third quarter of 2021, fueled by health care and financial services. Spending on goods decreased for the first time in more than a year, restrained by motor vehicles and gasoline.
• At next week’s Fed meeting, traders will parse Chair Jerome Powell’s comments for clues about the latest thinking around easing policy.

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 third weekly loss — and the biggest since January — as yields soar to a more than four-month high on geopolitical tensions and concerns about interest rates staying higher for longer and stubborn inflation. Yields, which have risen for seven straight sessions, are at 8.30% and spreads widened to 325 basis points.
• Rising yields and widening spreads against the backdrop of strong data and decent corporate earnings have fueled supply. The primary market has seen more than $8b priced this week
• Month-to-date supply stands at $21b and year-to-date volume to $106b
• The primary market seemed resilient even after Federal Reserve Chair Jerome Powell signaled that the Fed will wait longer than previously anticipated to cut interest rates after a series of surprisingly high inflation readings
• The market also shrugged off geopolitical conflicts on expectations that diplomacy will prevail and escalation would be stopped in its tracks
• Losses spanned across ratings. CCC yields approached 13%, a four-month high, after advancing 50 basis points week-to-date. Yields have risen for seven days in a row, the longest rising stretch in more than a year. Spreads jumped to an eight-week high of 786 basis points
• CCCs suffered losses for the seventh consecutive session and are headed toward the third week of losses. Week-to-date losses stood at 1.06%, the most in a week since early January

(Bloomberg)  Bond Funds Dangling 5% Yields Lure Cash to Active Managers

• About $90 billion flowed into active bond funds in the first quarter, the most for any three-month period since mid-2021. With yields now at their highest in almost two decades, fund managers see a window of opportunity for investors to lock in outsize returns before the Federal Reserve fulfills its promise to cut rates.
• The fresh inflows mark the start of “a longer multi-quarter and potentially multi-year trend out of cash,” said Ryan Murphy, head of fixed-income business development at Capital Group, the Los Angeles-based bond colossus. While many investors are still cautiously favoring cash, the rising payouts on debt securities should encourage more to shift their money into bonds, according to Murphy. “Investors are getting the best compensation on fixed income in 20 years,” Murphy said.
• While the sums are substantial, the real prize for bond managers is getting investors to shift out of money-market funds, which had been holding more than $6 trillion. It’s dropping now — the latest data Thursday showed the largest weekly decline in short-term cash holdings since September 2008.
• Bond buying right now is a tricky calculus for individual investors, in part because the timing and number of rate cuts keeps getting pushed back, with the latest delay signaled by Fed Chair Jerome Powell in an April 16 discussion. It also takes no small effort to sort through distorted bond prices and credit quality to find real opportunities.
• All of that favors active managers. “The big picture is that yields are attractive and you need to be an active manager in this environment,” Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, said in an interview last 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 second straight weekly loss as yields jump to a four-month high after the March core consumer price index rose for the third straight month, fueling fresh concerns that the Federal Reserve could delay interest-rate cuts to the end of year.
• Junk-bond yields breached the 8% level, climbing to 8.02% on 04/11. Week-to-date losses hit 0.47% after the biggest one-day loss in two months on Wednesday. Losses spanned across ratings as investors pulled cash out of the asset class.
• On Thursday, the producer price index also rose 2.1% from a year earlier, the biggest gain in 11 months, though some of the incorporating data sets in this index were a touch softer offering some relief after the surprise rise in the consumer price index
• BB yields advanced to a new four-month high of 6.83% and are poised to rise for the third week in a row. Yields have risen 19 basis points in the last four sessions, prompting a loss of 0.55% this week so far
• BBs are on track to end the week with losses and could be the biggest since mid-January
• CCC yields rose 25 basis points since last Friday to 12.37%, a more than six-week high. Rising yields also pushed week-to-date losses to 0.28%.
• Spreads held steady even while US Treasury yields soared. The 10- and 5-year US Treasury yields have risen 18 and 23 basis points, respectively, since last Friday to close at 4.59% and 4.63%
• With much of the credit investor base focused on yield buying, spreads have benefited from the rate impact on all-in yields, Brad Rogoff and Dominique Toublan of Barclays wrote in a Friday note
• Junk bond spreads closed at 301 basis points, a drop of 2 basis points week-to-date
• BB spreads were still far below 200 basis points at 185, unchanged for the week
• CCC spreads closed at a two-year low of 714 basis points, down just five basis points
• Attractive yields and still-tight spreads against the backdrop of a strong and resilient economy drew borrowers into the market
• April supply is near $13b and year-to-date at $97b

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 toward the biggest weekly loss since mid-January on renewed concerns about the Federal Reserve delaying rate cuts and holdings interest rates higher for longer on robust economic data. The drop was also driven by rising commodity prices, led by oil and copper, fueling more inflation concerns, with the commodity index climbing for six consecutive sessions to close at a four-month high. Data during the week showed expansion in US manufacturing activity, a resilient labor market, and a relatively strong services sector.
• The negative returns in the US high-yield market spanned across ratings. CCCs, the riskiest segment of the junk bond market, are expected to rack up the biggest weekly loss since early January.
• Yields jumped 16 basis points so far this week to 7.82%, the biggest weekly increase in 11 weeks. Spreads widened 13 basis points week-to-date to close at 312
• CCC yields climbed 26 basis points for the week so far to 12.13%, the largest in 13 weeks
• Single B and BB yields rose by 16 and 13 basis points, respectively, to 7.54% and 6.62%
• While worries about the Fed delaying easing interest-rates spurred losses across risk assets, the extent of these losses moderated a bit after Fed Chair Jerome Powell suggested that recent inflation readings, though higher than expected, didn’t “materially change” the overall picture. He also reiterated that it will likely be appropriate to begin lowering rates “at some point this year”

(Bloomberg)  US Jobs Roar Again as Payrolls Jump 303,000, Unemployment Drops

• US payrolls rose in March by the most in nearly a year and the unemployment rate dropped, pointing to a strong labor market that’s powering the economy.
• Nonfarm payrolls advanced 303,000 last month following a combined 22,000 upward revision to job gains in the prior two months, a Bureau of Labor Statistics report showed Friday. The rise exceeded all expectations in a Bloomberg survey of economists.
• The unemployment rate fell to 3.8%, with more people joining the workforce and able to find a job.
• Job growth in March was led by faster hiring in health care, construction, as well as leisure and hospitality, which has now bounced back above its pre-pandemic level. A measure of the breadth of job gains increased.
• “The US labor market appears to be strengthening, not slowing, and risks delaying Fed easing,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note.
• The labor market has been the stalwart of the US economy, giving Americans the wherewithal to keep spending in the face of high prices and borrowing costs. While Fed officials have flagged moderation in job gains over the past year as a possible precursor to interest-rate cuts, Friday’s data may raise questions over the extent of that cooling and its implications for inflation.
• An aggregate measure of weekly payrolls — which provides a broader reading of changes in earnings, hours and employment — rose 0.8%, matching the biggest monthly increase since January 2023.
• Fed Chair Jerome Powell said Wednesday that labor supply and demand have come into better balance, nodding in part to more immigration. Policymakers have stressed they’re in no rush to lower borrowing costs and that incoming data will guide that decision.
• Officials will see fresh figures on consumer and producer prices next week, followed by the March reading of their preferred inflation gauge — the personal consumption expenditures price index — before their April 30-May 1 meeting.
• The jobs report is composed of two surveys: one of businesses that generates the payrolls and wage data, and another smaller one of households used to produce the unemployment rate.
• The household survey also publishes its own measure of employment, which surged nearly a half million in March after declining in the prior three months. Many economists have discounted the recent weakness in this metric given that other indicators remain strong, such as unemployment claims and consumer spending.

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 rally came as a lagged response after Federal Reserve Chair Jerome Powell’s reiteration that rate cuts are likely to begin later this year. Yields plunged to a nearly 12-week low of 7.65%, after dropping for four straight sessions, and are on track for the biggest weekly decline in 10 weeks. Spreads tightened to a new two-year low of 292 basis points and are headed for third straight week of decline.
• The broad junk bond gains were powered by expectations that the Fed will steer a soft landing after its officials’ median projection showed three quarter-point cuts in 2024.
• The gains in the US junk bond market spanned across ratings. BB spreads, the most rate sensitive part of the high yield market, dropped to a new four-year low of 177 basis points. Yields closed at 6.47%, falling 19 basis points week-to-date, and are poised for the biggest weekly drop in almost 10 weeks
• The index is headed to end the week with gains of 0.5%, rebounding from last week’s losses and spurred by the Fed’s reiteration that it was appropriate to slow the pace at which the central bank shrinks its balance sheet, suggesting further easing of its restrictive stance
• BBs are poised to close the week with gains of 0.76%, the biggest since week ended Jan. 12, after notching the biggest returns in 11 weeks on Thursday
• Single B yields tumbled to a fresh two-year low of 7.45% and have fallen 16 basis point this week, the biggest weekly decline in eight weeks. Spreads fell to 268 basis points, the lowest since 2007
• CCC yields dropped back to below 12% and closed at 11.93%. Spreads closed at 718 basis points, tightening for the seventh straight week, the longest tightening streak since 2016
• Borrowers and investors are still being drawn to the junk bond market amid steady yields and tightening spreads against the backdrop of a resilient economy and expectations of soft landing

(Bloomberg)  Fed Signals Three Cuts Still Likely, Despite Inflation Uptick

• Federal Reserve officials maintained their outlook for three interest-rate cuts this year and moved toward slowing the pace of reducing their bond holdings, suggesting they aren’t alarmed by a recent uptick in inflation.
• Officials decided unanimously to leave the benchmark federal funds rate in a range of 5.25% to 5.5%, the highest since 2001, for a fifth straight meeting. Policymakers signaled they remain on track to cut rates this year for the first time since March 2020, but they now see just three reductions in 2025, down from four forecast in December, based on the median projection.
• Chair Jerome Powell, speaking to reporters after the Fed’s decision Wednesday, demurred when asked whether officials would lower rates at their coming meetings in May or June, repeating that the first reduction would likely be “at some point this year.”
• He largely shrugged off recent data showing an uptick in inflation in recent months, saying, “It is still likely in most people’s view that we will achieve that confidence and there will be rate cuts.”
• At the same time, he said the data supported the Fed’s cautious approach to the first rate cut, and added that policymakers are still looking for more evidence that inflation is headed toward their 2% goal.
• Inflation has eased “notably in the past year but remains above our longer-run goal of 2%,” Federal Reserve Chair Jerome Powell said to reporters in Washington.
• Powell also said it would be appropriate to slow the pace of the Fed’s balance-sheet unwind “fairly soon,” after policymakers held a discussion on their asset portfolio this week.
• “The decision to slow the pace of runoff does not mean our balance sheet will shrink, but allows us to approach that ultimate level more gradually,” he said. “In particular, slowing the pace of runoff will help ensure a smooth transition, reducing the possibility of money markets experiencing stress.”
• The Fed’s post-meeting statement was nearly identical to January’s, maintaining the guidance that rate cuts won’t be appropriate until officials have more confidence inflation is moving sustainably toward their 2% target.

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

• The US junk bond rally finally broke on Thursday with the biggest one-day loss in four weeks driving the market to its first modest weekly loss since mid February. Data showed inflation continues to be sticky, even as retail sales showed some sluggishness signaling consumer spending may not hold as strong.
• The prices paid to US producers rose the most in six months, pushed by higher fuel and food costs reinforcing broad concerns that the Federal Reserve may not be persuaded to ease its interest-rate policy anytime in the first half of the year.
• While the market is pricing in fewer cuts and Treasury yields have increased markedly, it is a positive for credit, Barclays’ Brad Rogoff and Dominique Toublan wrote in a note Friday.
• Junk bond yields have risen six basis points in the last four sessions to 7.78.
• While yields were higher, though steady in the 7.70%-7.80% range, spreads dropped to 302 basis points, the lowest since January 2022, and a decline of 12 basis points since the beginning of the week.
• Modest losses extended across ratings snapping the 15-day gaining streak in CCCs, the riskiest part of the high yield market. CCCs posted a loss of 0.21% on Thursday, the first in 16 sessions.
• CCC yields rose to 12.01%, a five basis-point increase from last Friday, and the first weekly jump in four weeks.
• CCCs, powered by the 15-day gaining streak, are headed to small gains for the week, bucking the broader trend. The week-to-date gains are 0.15%.
• A resilient economy, a steady labor market and strong corporate balance sheets have drawn borrowers and investors into the market.
• Steady yields and prices below par are inducing borrowers to take advantage of the market. The index price has hovered around $92-$93 this year.
• Four deals for more than $2b priced on Thursday, pushing weekly issuance volume to $4.2b. The month-to-date supply stands at $11.8b.
• Year-to-date supply is $69b.
• The primary market is expected to stay busy in the next two weeks, though it may slow down ahead of the Fed meeting 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

• The US junk bond market is headed toward a third-straight weekly gain, with its current six-day winning streak the longest this year and yields dropping to 7.75%.
• It’s allowed yields for the riskiest part of the market, CCCs, to fall below 12% for the first time this year.
• They’ve fallen 21 basis points so far this week, on top of last week’s 31bp plunge, putting weekly returns at 0.64%.
• CCC notes have had positive returns for 11 consecutive sessions, the longest since June, as it’s the best-performing asset class in US fixed income.
• Spreads have dropped 15 basis points this week to 737, the tightest since May 2022.
• The junk market’s rally gained momentum after Fed Chair Powell told Congress that rate cuts are likely this year and recession risks are not elevated in the near term.
• Jobs data remains robust on the openings and unemployment claims front, ahead of this morning’s employment report for February.
• Steady yields and historically tight spreads across ratings continue to draw borrowers and investors into the market.
• Bloomberg Intelligence analysts Noel Hebert and Sam Geier predicted high-yield bond sales this month will range from 25b-$29b.
• While things may slow some ahead of the next Fed meeting, bankers are prepping to begin a debt sale for the leveraged buyout of Truist Financial’s insurance brokerage business as loans for the deal get done.
• Conversations with investors continue to indicate that yields of 7.8% in high yield and 5.3% in investment grade are attractive enough even though spreads are tight to support strong demand, Barclays’ Brad Rogoff and Dominique Toublan wrote in note this morning.

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

• The broad rally in risk assets has propelled CCCs, the riskiest part of the junk bond market, to the top as the best performing asset class in February. Returns for the month were 1.7% after climbing for six consecutive sessions. The gains came after S&P 500 breached the 5,000 level and steadily climbed to close at an all-time high.
• CCC returns turned positive year-to-date for the first time in the last week of February, only to accelerate to rise as the best asset class for total returns in the US fixed income market.
• CCC yields tumbled 43 basis points in February to close at a nine-week low of 12.24% bucking the broader trend as BB yields rose 17 basis points to 6.65%. Single B yields barely moved to close at 7.64%.
• Broad macro economic data reiterated the narrative about strong and resilient growth amid a slower-than-expected decline in inflation. However, robust economic growth, against the backdrop of relatively stable inflation reading, bolstered risk assets across markets.
• The recent outperformance of lower-quality assets has coincided with large gains in some of the riskier and more speculative parts of the market, such as cryptocurrencies, Barclays analysts Brad Rogoff and Dominique Toublan wrote in a Friday note.
• Loose financial conditions continue to support risk-taking in the markets, they wrote.
• Though spreads are historically tight, yields are supporting strong demand, the analysts reiterated again this morning.
• Tight spreads, attractive yields and resilient economy have drawn US borrowers into the market powering a supply boom.
• February supply of almost $27b pushed the year-to-date tally to $58b, a 70% jump year-over year.
• New bond sales in February were up 86% over last February.

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.