Category: Insight

(Bloomberg)  High Yield Market Highlights

• US junk bond yields reached a new nine-month high on climbing oil prices, and Fed Chair Jerome Powell cautioning that the inflationary fallout from rising energy costs remains uncertain.
• The high-yield primary market has remained quiet.
• Rattled investors pulled more than $3b from US high yield funds last week. The weekly withdrawals were the highest since the tariff-turmoil last April, reflecting the continuing war in Iran and concerns about its potential impact on inflation and growth.
• CCC yields, the riskiest part of the market, breached the 11% level to close at a nine-month high of 11.05%. BB yields also rose to a new nine-month high at 6.14%, on track for a fourth weekly rise, the longest such streak since April 2025.

(Bloomberg)  Fed Holds Rates Steady, Powell Vows to Stay Amid DOJ Probe

• Federal Reserve officials left interest rates unchanged as they acknowledged increased uncertainty due to war in the Middle East.
• Chair Jerome Powell emphasized that to resume lowering rates, officials would have to see progress in reducing inflation, especially goods inflation that has been boosted by tariffs.
• “If we don’t see that progress, then we won’t see the rate cut,” Powell said in remarks to reporters after the Fed released its decision.
• That progress may be difficult to achieve. In economic forecasts released with their decision, officials raised their outlook for inflation in 2026 to 2.7% from 2.4%. Notably, they saw the core measure — which excludes volatile food and energy categories — also rising to 2.7%.
• Powell surprised Fed watchers by making some definitive statements about his near-term future at the central bank. He told reporters he had “no intention” of resigning as a member of the Fed’s Board of Governors until an investigation by the Department of Justice into a building renovation project is “well and truly over.”
• He said that if his successor is not confirmed before his term as chair ends in May, he would serve as chair pro tempore. The Fed has conferred that temporary designation in the past on a board member to lead the institution when the chair role was vacant. Powell’s term as a governor extends until January 2028.
• He said he hadn’t decided whether he would depart if the investigation were closed.
• The Federal Open Market Committee voted 11-1 to hold the benchmark federal funds rate in a range of 3.5% to 3.75%. Governor Stephen Miran dissented, calling for a quarter-point reduction.
• In their post-meeting statement, policymakers underscored the uncertainty they’re facing in the economy due to the conflict in the Middle East, as did Powell in his press conference.
• “It is too soon to know the scope and duration of the potential effects on the economy,” Powell said. “The thing I really want to emphasize is that nobody knows.”
• Asked about the impact of surging oil prices on inflation, Powell acknowledged that central bankers typically don’t raise rates when energy prices jump because the impact on inflation is temporary. But that approach, he said, has always depended on the public continuing to expect inflation will settle around the Fed’s 2% goal over the long term. He also noted that inflation in the US has been above the Fed’s 2% target for five years.
• Powell said the committee had again discussed the possibility that the Fed’s next rate move could be a hike, but added, “the vast majority of participants don’t see that as their base case.”
• Wednesday’s decision marks the second straight time officials held rates in place, though the economic backdrop has changed significantly since their last meeting. In January, policymakers signaled growing confidence the unemployment rate was stabilizing. Soon after, several officials sounded intent on holding rates for an extended period to help nudge inflation lower.
• Then came a weak February employment report that cast fresh doubt on the steadiness of the labor market. US-Israeli strikes against Iran that began Feb. 28 have also caused global oil prices to surge, threatening to boost inflation and undermine growth and employment.
• Officials dropped language from their January statement describing the labor market as showing signs of stabilization. In its place, they said the unemployment rate was “little changed in recent months.”

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 soared and risk premiums approached 300 basis points fueling the biggest one-day loss in nearly a year, as fears of higher oil prices and inflation rattled markets. The energy sector accounts for more than 11% of the US high yield index.
• The selloff comes as the private credit market shows signs of stress, with redemptions mounting and withdrawals being blocked. Yields jumped the most in nearly a year, and losses spanned across ratings. BB yields surged to close at an eight-month high.
• Middle East risks, sticky inflation and private credit stress are headwinds for Treasury yields and spreads, Barclays strategists Brad Rogoff and Dominique Toublan wrote in note. However, solid fundamentals and strong demand for yield should limit the downside, they wrote
• CCCs, the riskiest part of the junk bond market, racked up the most losses in four months. Spreads closed at 637 basis points
• Oil markets brushed aside the largest-ever release of emergency energy stockpiles as President Donald Trump said that preventing Iran from having nuclear weapons and threatening the Middle East is “of far greater interest and importance to me” than the cost of oil
• In the primary market, US borrowers shrugged off elevated volatility and moved off the sidelines
• Two more deals for more than $1b priced on Thursday driving the week’s tally to $4.6b and March’s volume to nearly $10b. Additionally, the market is readying for a crowded calendar 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 will take their cue from key employment and retail sales data Friday amid broader market angst tied to Iran war
• Meanwhile, issuance of new junk notes has slowed to a trickle
• Thursday saw one deal enter the market, a $250 million tap from NGL Energy, but that offering was subsequently dropped as a concurrent leveraged-loan offering was upsized by that amount
• High-yield bonds have posted losses on five of the last six sessions, and the market is at risk of its first back-to-back weekly declines in four months, according to data compiled by Bloomberg

(Bloomberg)  US Unexpectedly Sheds 92,000 Jobs, Unemployment Rate Rises

• US employers unexpectedly cut jobs in February and the unemployment rate rose, pointing to lingering fragility in a labor market that was thought to be stabilizing.
• Nonfarm payrolls decreased 92,000 last month after a strong start to the year, according to Bureau of Labor Statistics data out Friday. The unemployment rate climbed to 4.4%. The decline in payrolls — which was one of the largest since the pandemic — partly reflected a decrease in health care employment due to strike activity.
• The report calls into question whether the labor market is actually steadying after the worst year for hiring outside of a recession in decades. While job growth jumped in January and unemployment insurance claims have settled at a low level, companies may be starting to follow through on a series of previously announced layoffs.
• And a recent trend in productivity gains illustrates how spending on artificial intelligence has allowed some firms to get by with leaner staffing.
• “The idea the labor market has turned a corner implodes with this report,” Samuel Tombs, chief US economist at Pantheon Macroeconomics, said in a note.
• The figures could refocus the Federal Reserve’s attention on the jobs market as it assesses how long to hold interest rates steady. Policymakers have been more attuned to inflation lately — even before the US-Israeli war on Iran sparked concerns among investors about price pressures.
• In an interview on CNBC following the report, San Francisco Fed President Mary Daly said, “The hopes that the labor market was steadying, maybe that was too much, and we really have to keep our eye on the labor market.”

(Bloomberg)  US Retail Sales Fell in January on Fewer Vehicle Purchases

• US retail sales declined in January, restrained by weakness at auto dealers as winter weather-related disruptions tempered some activity.
• The value of retail purchases, not adjusted for inflation, decreased 0.2% after no change in December, Commerce Department data showed Friday. Excluding car dealers, sales were little changed.
• Seven out of 13 categories posted decreases. Motor vehicle sales dropped 0.9%, while receipts at apparel merchants, gas stations and health and personal care stores also declined.
• The report showed a 0.3% increase in so-called control-group sales — which feed into the government’s calculation of goods spending for gross domestic product. The measure excludes food services, auto dealers, building materials stores and gasoline stations.
• More modest overall retail spending at the turn of the year has been accompanied by worries about the job market and cost of living. While wealthier households have the wherewithal to purchase non-essential goods, middle- and lower-income consumers may be growing more cautious.
• Walmart Inc., a bellwether for the economy, last month forecast less earnings growth this year than expected.
• A lengthy winter storm that included significant snowfall and ice across the central and eastern US likely impeded shoppers during the weather event. The Arctic blast triggered the most flight cancellations since the pandemic and left more than 1 million homes and businesses without power.
• Receipts at restaurants and bars, the only service-sector category in the retail report, declined 0.2% in January. Restaurants including Sweetgreen Inc. and Chipotle Mexican Grill Inc. said that sub-freezing temperatures and winter storms hindered sales.

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, yields rose and risk premiums surged as anxieties over artificial intelligence boiled over, causing a broad reassessment of riskier assets. Yields jumped the most in three weeks to 6.63% and spreads widened the most in four months to 275 basis points.
• The selloff extended across ratings. CCC yields approached 10% after the biggest one-day increase in 10 months. Spreads rose 27 basis points to close at the year-to-date high of 616 basis points.
• Single B spreads closed at 302, a more than two-month high. Yields climbed to approach 7%
• The broad selloff started mid-week after a stronger-than-expected jobs report dashed hopes of Fed rate cuts
• The primary market paused on Thursday, with just one deal pricing
• A stable labor market and relatively strong corporate balance sheets kept the primary market busy earlier in the week; February volume is above $12b
• Four borrowers priced more than $4b on Wednesday, the busiest single-day volume in three weeks

(Bloomberg)  US Adds 130,000 Jobs and Unemployment Falls After Tepid 2025

• US payrolls rose in January by the most in more than a year and the unemployment rate unexpectedly fell, suggesting the labor market continued to stabilize at the start of 2026.
• Employers added 130,000 jobs last month and the unemployment rate declined to 4.3%, according to Bureau of Labor Statistics data out Wednesday. That followed revisions to the prior year, which showed a marked slowdown in hiring. Job gains averaged just 15,000 a month last year, down from the initially reported 49,000 pace.
• The report suggests the labor market is finding its footing after the most anemic year for hiring outside of a recession since 2003. While economists expect hiring to remain generally sluggish in 2026, more clarity around the impact of President Donald Trump’s economic policies and lower borrowing costs could encourage some employers to boost headcount.
• The January data reinforces Federal Reserve officials’ inclination to keep interest rates on hold for now. Many traders appeared to push out their timeline for the next rate cut to July from June.
• In leaving rates unchanged last month, Chair Jerome Powell cited signs of steadying in the job market.
• “Coming off of a hiring recession in 2025, this is welcome news,” said Heather Long, chief economist at Navy Federal Credit Union. “I think Fed Chair Powell was right — the labor market appears to be stabilizing.”
• With the release of each January employment report, BLS benchmarks payrolls to a more accurate but less timely series called the Quarterly Census of Employment and Wages. That data is based on state unemployment insurance tax records and covers most US jobs.
• That adjustment showed job growth was nearly 900,000 lower in the 12 months through March 2025 than initially reported. The figure roughly aligned with what the BLS’s preliminary estimate suggested.
• The pickup in January hiring was led by health care, which added the most jobs since 2020 and accounted for the majority of overall job growth in 2025.  Federal government payrolls continued to decline.
• “It’s great that health care is growing the way it is, but I would feel much better if we were seeing broader strength,” said Laura Ullrich, director of economic research at Indeed Hiring Lab. “It is quite lopsided growth.”
• Though layoffs remain generally constrained, there’s been a wave of job-cut announcements by companies like Amazon.com Inc. to United Parcel Service Inc. in recent weeks. And heading into this year, job openings across the economy dropped to the lowest level since 2020.
• The jobs report is comprised of two surveys, one of businesses — which produces the payrolls figures — and another of households, which is the source of the unemployment rate. Within the household survey, the participation rate — the share of the population that is working or looking for work — edged up to 62.5% in January.
• Wednesday’s release also included widespread revisions to the employer survey. With the release of the January 2026 data, the BLS updated its so-called birth-death model, which accounts for the net number of businesses opening and closing. Economists have noted this change should improve the model’s responsiveness to current economic conditions and reduce the size of benchmark revisions over time.
• Adjustments to job numbers have been bigger than usual in recent years, which some economists attribute to unique post-pandemic dynamics.
• While the January jobs report usually incorporates new population estimates from the Census Bureau into the household survey, those figures were delayed by a month due to last year’s record-long government shutdown.

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 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.