Category: Insight

(Bloomberg)  High Yield Market Highlights

• The selloff in junk bonds extended for a third straight session, driving yields to a new 17-month high and risk premiums to the widest in eight weeks as rising oil prices intensified inflation fears.
• The losses swept across ratings as Treasury yields pushed higher, pushing broad junk bond yields past 8%. CCC yields surged to 14.5%, the highest since November 2023.
• Despite the broad risk-off move this week, borrowers continued flood the primary market. Nine deals for more than $17b priced this week, marking the busiest week since September 2025.
• An even bigger supply wave looms, with Paramount preparing to launch about $44b of investment grade and high-yield bonds early next week. It is already marketing a $7.5b term loan across USD and euros.
• Optimistic macro backdrop and higher yields would continue to support demand and keep spreads range bound, Brad Rogoff and Dominique Toublan of Barclays wrote in a Friday morning note.

(Bloomberg)  US Consumer Sentiment Falls on Worries About Prices, Economy

• US consumer sentiment fell in September to a four-month low amid deepening worries about rising prices and the outlook for the economy.
• The University of Michigan’s final sentiment index decreased to 48.1 in September from a month earlier, according to the survey released Friday.
• Consumers expect prices to rise 4.6% over the next year, up from 4% in the previous month. They also saw costs rising at an annual rate of 3.4% over the next five to 10 years, the highest since May.
• Consumer sentiment deteriorated in September as diesel prices hit a record and gasoline prices climbed. Higher prices at the pump are exacerbating workers’ longstanding frustrations about the cost of living in the US.
• Inflation remains stubbornly elevated. Prices are rising faster than paychecks, and mortgage rates have surged above 7%, pushing homeownership even further out of reach for many.
• “Despite political differences, consumers unanimously believe that the outlook for the economy has diminished,” Joanne Hsu, director of the survey, said in a statement.
• Since the start of the year, consumer sentiment has declined for all groups by age, education, geography, political party and income, according to the report.
• A gauge of the outlook for the economy in the year ahead slumped in September to the lowest since 2022. Consumers’ expectations for their personal finances also deteriorated.
• Buying conditions for durable goods improved slightly, but it was partly “due to a perception that completing such purchases now would help consumers avoid higher prices in the future,” Hsu said.
• An index of consumer expectations dropped to a four-month low, and the current conditions gauge also fell.
• The survey period includes responses from Aug. 25 to Sept. 21.

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

• After the Federal Reserve delivered a quarter-point rate hike and oil prices retreated for a second consecutive session, there was a bit of optimism that inflation can be contained without disrupting growth. The Federal Reserve, in fact, lifted growth forecasts for 2026 and 2027 to 2.3% and 2.4%, respectively, from 2.2% and 2.3%.
• The Fed move bolstered the primary market as spread compression continued, while higher yields powered robust demand.
• The primary market is expected to see a steady stream of supply powered by tight spreads, steady yields against the backdrop of steady growth, strong corporate balance sheets, and low defaults

(Bloomberg)  Fed Raises Rates to Curb Inflation

• The Federal Reserve raised interest rates by a quarter percentage point and penciled in an additional hike later this year, steps aimed at containing inflation.
• “We removed a dose of accommodation so that financial and credit conditions would be more consistent with our ultimate objectives,” Warsh said during a press conference following the decision. “Today’s action starts to show we’re serious about this, and we will deliver on the price stability objective.”
• The Federal Open Market Committee voted unanimously to increase the benchmark federal funds rate to a range of 3.75% to 4% on Wednesday. It was the US central bank’s first rate increase since July 2023.
• In his remarks to reporters, Warsh restated his concerns over inflation, saying too many categories of products and services were showing annualized price gains above 3% on a 6- and 12-month basis.
• “This summer’s inflation readings do not tell me that underlying trends have meaningfully improved,” he said.
• His comment on removing a “dose of accommodation” also drew attention from Fed watchers.
• “That’s hawkish. If the chair thinks policy is accommodative, then you’ve got more work to do,” said Michael Gapen, chief US economist for Morgan Stanley.
• Two-year Treasury yields — the most sensitive to the Fed’s policy — erased an earlier decline to trade at 4.73%, more than 12 basis points higher than they were before the announcement.
• “Clearly, the Fed is more concerned about inflation at the moment,” said Oscar Muñoz, chief macro strategist at TD Securities. “That’s why they hiked today, and it seems like there are more hikes in the pipeline.”
• In a new set of rate projections released Wednesday, Fed officials’ median outlook for interest rates at the end of 2026 rose to 4.1% from 3.8%, signaling growing support for a series of rate hikes.
• Sixteen officials projected at least one additional increase this year, up from six in June who saw at least two total increases in 2026. The median projection for 2027 pointed to no additional rate hikes next year. However, eight policymakers favored moving another quarter point higher by the end of 2027 compared to where rates stand now.
• As in June, when Warsh declined to submit his own forecasts, only 18 of 19 officials provided rate projections for 2026 and 2027.
• The rate increase comes after the Bureau of Labor Statistics reported last week that core inflation rose at a hotter-than-expected pace in August. That added to growing concern that inflationary pressures may be broadening beyond the temporary effect of tariffs and the Iran war’s impact on energy prices.
• Warsh emphasized how well the US economy is performing and repeated that officials don’t see broad financial conditions as restraining growth.
• “The American economy appears to be strengthening,” he said. “Given that resilience and the potential for even greater performance, an attitude of optimism is exactly what I heard inside the FOMC these last two days.”
• Warsh warned last month that inflation was not meaningfully slowing, opening the door to policy tightening.
• In the committee’s post-meeting statement Wednesday, officials again characterized inflation as elevated, yet also described the economy in positive terms.
• “Productivity growth is strong, and capital investment is robust,” officials said. “Job gains have kept pace with the workforce, and the unemployment rate has changed little.”
• Officials repeated a promise to deliver on price stability. But even with the rate hike, they pushed out by one year their expectation for when inflation would return to 2%. The median forecast now sees it reaching that level in 2029.
• Support for higher rates has been slowly building within the Fed all year. At their July meeting, officials left rates unchanged, but three regional Fed bank presidents — Lorie Logan of Dallas, Cleveland’s Beth Hammack and Minneapolis’ Neel Kashkari — dissented in favor of a rate hike.
• Minutes from that gathering showed many officials indicated policy tightening would be necessary if inflation didn’t decline.

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 suffered their worst one-day selloff since March, with yields surging to a five-month high, as spiking oil prices hit Treasuries. The yields on 5-year and 10-year US debt climbed to a near three-year high.
• The rally in oil prices for a third straight session fueled losses in equities and bonds on renewed bets that the Federal Reserve will raise interest rates soon.
• The broad risk aversion pushed CCC yields to new three-year high of 13.57% and spreads to a fresh two-year high of 885 basis points.
• Average yields jumped 15 basis points to 7.63%, the biggest one-day increase since March. CCC yields rose 20 basis points, the biggest one-day jump since June. CCCs also racked up their biggest one-day loss since March
• Meanwhile, US borrowers are rushing to sell debt ahead of the Fed meeting next week
• Lots of new deals priced, taking the week’s tally to $12b, the busiest week since early June
• The calendar is expected to continue to build in the coming weeks.

(Bloomberg)  US Core CPI Tops Forecasts, Bolstering Case for Rate Hike

• A key gauge of US consumer prices reported August numbers Friday morning, bolstering the case for Federal Reserve officials to raise interest rates next week.
• The consumer price index, excluding food and energy, climbed 0.3% in August from a month earlier, according to Bureau of Labor Statistics data out Friday. The median estimate in a Bloomberg survey called for a 0.2% increase. On an annual basis, it advanced 2.4%.
• Futures showed investors priced in a rate hike next week as a near certainty following the release, and put a high likelihood on a second increase before the end of the year.
• The report suggests inflation made little progress toward the Fed’s goal last month amid ongoing pressures from the Iran war, tariffs and the data center buildout. The US central bank will likely see the numbers as tipping the scale in favor of the first rate increase in three years after some officials suggested the Sept. 15-16 decision could come down to what the figures showed.
• “The renewed march higher in oil, gasoline and diesel prices add to concerns that higher energy prices could spill over to other goods and services and inflation expectations,” Nationwide Chief Economist Kathy Bostjancic said in a note. “As such we are now looking for the Fed to raise rates” next week, she said.
• Fed Chairman Kevin Warsh has been reluctant to tip his hand on the central bank’s next move, but in a speech last month he said the Fed would “have work to do” if it could not “be confident that underlying inflation is moving to our objective, clearly and at sufficient speed.”
• The US economy, meanwhile, is contending with resurgent energy prices as the Middle East and Russia-Ukraine wars hit supplies. This week, oil prices pushed above $100 a barrel and US retail diesel prices rose to a record.
• Friday’s report showed the overall CPI was up 0.4% from the prior month and 3.4% from a year earlier. Energy prices rose 2.1% in August.
• “It’s not really a report that makes us get more concerned about the inflation outlook,” even if it will lead the Fed to raise rates next week, said Stephen Juneau, a senior economist at Bank of America Corp.
• Many Americans have been squeezed between rising prices and tepid pay gains. A separate report Friday that combines the inflation figures with recent wage data showed real average hourly earnings fell 0.3% in August from a year earlier, adding to a string of weak readings since the Iran war began.
• Central banks typically raise interest rates to increase borrowing costs, dampen demand and cool inflation. Fed officials have left rates steady at each of their last five meetings, though at the July gathering, three of them dissented in favor of a quarter-point rate hike.
• The August CPI report is the last major gauge of inflation before the September gathering. A separate report Thursday showed producer prices rose last month by the most since May, lifted by a surge in energy prices.
• The Fed’s preferred measure of inflation, the personal consumption expenditures price index, is due at the end of the month. Following Friday’s release, economists at several firms said they expect the core gauge in the PCE report to show a 0.3% increase.

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 fizzled out as uncertainty over the Strait of Hormuz fueled oil prices and expectations of a September Federal Reserve rate hike. High-yield snapped a three—day winning streak despite resilient labor market and strong productivity growth.
• The rally reversed across ratings. CCC yields jumped 20 basis points to 12.60% and spreads widened 13 basis points to 821.
• Though the rally lost some momentum on Thursday, resilient macro data, strong corporate earnings and growing evidence of AI-related benefits support risk-on sentiment, Barclays strategists Brad Rogoff and Dominique Toublan wrote on Friday
• In the primary market, just one $600m deal by OneMain Finance was priced, lifting weekly issuance to $3.3b. Four borrowers sold bonds for $2.7b on Wednesday, lifting year-to-date volume to nearly $201b

(Bloomberg)  US Employers Unexpectedly Shed Jobs

• US employers unexpectedly cut jobs in July and hiring in the prior two months was revised lower, suggesting the labor market is weaker than previously thought after surprising strength earlier this year.
• Nonfarm payrolls decreased 23,000 last month following a combined 103,000 downward revision to the May and June figures, Bureau of Labor Statistics data showed Friday. The unemployment rate fell to 4.1% as labor force participation continued to slide, and wage growth slowed.
• The report suggests the labor market may be starting to falter amid rising prices and uncertainty from the Iran war, despite recent data showing strength in consumer spending and business investment. The data could also prompt the Federal Reserve to delay interest-rate increases as officials weigh inflation against risks to employment.
• US stocks opened higher and Treasury yields fell as investors reduced bets on a Fed rate hike in September. Still, upcoming reports on consumer prices — including data for July next week — could ultimately decide the Fed’s course of action next month.
• “The soft labor market report should lower market expectations for a Fed rate hike in the coming months, but the inflation reports will be the key focus for Fed officials,” Nationwide Chief Economist Kathy Bostjancic said in a note. “If inflation prints run hot for the next few months, then odds of a rate hike increase.”
• The decline in jobs was driven by cuts in government, leisure and hospitality and retail trade. Private-sector payrolls rose by 30,000 for a second month, led by healthcare and social assistance.
• Local government employers shed nearly 60,000 jobs, almost entirely in education, which can be volatile in the summer as many teachers fall off of payrolls before returning again as the school year begins. Federal government payrolls also fell.
• Leisure and hospitality employment declined to the lowest level in almost a year as restaurants and bars shed staff, suggesting the FIFA World Cup that ended July 19 didn’t provide the boost to payrolls many forecasters had anticipated.
• The report comes as high-profile companies announced layoffs throughout the month including Microsoft, Uber Technologies Inc. and Visa Inc. Payrolls in the financial activities sector, a key employer of white-collar workers seen as among the most vulnerable to artificial intelligence adoption, fell to the lowest level in four years.
• Manufacturing and construction payrolls, however, continued to climb. Many economists have pointed to the data-center buildout as a possible driver of demand for construction labor in 2026, even as homebuilding continues to be restrained by high interest rates.
• The participation rate — the share of the population that is working or looking for work — fell to 61.4%, which excluding the pandemic was the lowest since the 1970s. Among those between the ages of 25 and 54, known as prime-age workers, participation edged higher but remained near the lowest levels of the last few years.
• Purchasing power will also be a key issue heading into the November midterm elections, especially as the Iran war has further driven up the cost of living. While consumer sentiment rebounded last month, consumers’ views about their current financial situation remain below levels seen in recent years.
• Other data out this week offered better news. ADP Research said wage gains for private-sector workers who switched jobs picked up in July to the highest in almost a year. Bank of America Institute, meanwhile, found a jump in pay and job gains among lower-income households last month, and a gauge of small-business hiring plans from the National Federation of Independent Business rose to the highest level in almost four years.
• “This does not look credible to me. The numbers don’t jibe with what we’re seeing more broadly for the labor market,” said Stephen Stanley, the chief economist at Santander US Capital Markets LLC. “If the labor market had weakened as much as the June and July jobs report suggests, we’d be hearing it from Fed officials and the economy, and we’re not.”

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 bounced back from Wednesday’s selloff as yields and spreads declined, driving modest gains on a broader risk-on tone as equities recovered on strong corporate earnings and a dip in oil prices.
• The recovery was broad-based, with yields and spreads falling across ratings. CCC yields fell 12 basis points to 12.71%, while spreads tightened 9 basis points to 831.
• Market volatility, fueled by continuing hostilities in the Middle East, climbing oil prices and inflation worries kept new borrowers on the sidelines, with just three deals pricing for $3b, spurring a monthly volume of a little more than $18b
• Three PE-backed firms sold bonds this week.
• Solid private demand growth, moderating inflation and strong earnings remain supportive of the credit markets, but hyperscaler weakness is spreading across the broader AI ecosystem, Barclays’ strategists Bradley Rogoff and Dominique Toublan wrote

(Bloomberg)  Fed Dissenters Say Rate Hikes Needed to Tame High Inflation

• Three Federal Reserve officials who dissented against Wednesday’s decision to hold interest rates steady warned that waiting too long to act against inflation could risk the need for even more aggressive policy moves later.
• “The longer that high inflation persists, the more challenging and costly it can be to bring it back down,” Cleveland Fed President Beth Hammack said in a statement released Friday.
• Minneapolis Fed President Neel Kashkari said in a separate statement that to manage against the risk of high inflation becoming entrenched, he “would rather tighten policy incrementally as we gather more data on the path of inflation and employment.”
• Lorie Logan, head of the Dallas Fed, said in a statement released later Friday that “modest action in the near term would reduce the likelihood of needing to take sharper action later.”
• Fed officials voted 9-3 this week to leave their benchmark rate unchanged for the fifth consecutive meeting. Policymakers have held their target rate in a range of 3.5% to 3.75% all year. But more officials have expressed support for potential rate increases after renewed tensions in the Middle East and a massive investment boom driven by artificial intelligence have revived inflationary pressures.
• Hammack, Kashkari and Logan, who all would have preferred to raise rates this week, pointed to the various supply shocks helping drive up inflation. Hammack said she sees pressure on the demand side of economy as well. Kashkari said that the Fed’s tools can be successful in fighting inflation driven by “successive supply shocks,” as they were in the late 1970s and early 1980s.
• Logan argued that inflation “appears to be trending toward the mid-2’s, not all the way to 2%” — the rate Fed officials target — even after accounting for the supply shocks and gains in productivity. She said the labor market, spending and financial market conditions suggested policy was not restraining the economy and it was unlikely price pressures would fully cool without some action from the Fed.
• All three officials noted that the economy overall is strong right now.
• The Fed’s preferred inflation measure, the personal consumption expenditures index, fell 0.1% in June, data released Thursday showed. A report earlier this month showed a similar decline in another inflation measure, driven by large declines in gasoline prices. Now, economists warn the inflation relief seen earlier this summer may be short lived after a re-escalation of the Iran war pushed oil prices up again in July.
• Hammack said she did not see policy as “appropriately restrictive” to cool price pressures, and was not confident inflation would return to the Fed’s 2% goal on its own.
• “Now is the time for the FOMC to act to speed the return of PCE inflation to our 2% objective and deliver on our commitment to price stability for the American people,” she said.
• The same three regional bank presidents dissented at the Fed’s April meeting. While they supported the decision to hold interest rates then, they objected to language in the post-meeting statement that suggested the next rate move would likely be a cut.

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 and risk premiums surged the most in four months as rising crude prices, a resilient labor market and escalating tensions with Iran reignited inflation concerns. Yields climbed to a nearly four-month high after rising for five straight sessions, the longest streak since November, triggering the biggest one-day loss since March.
• The selloff swept across the US high-yield market, driving CCC yields and spreads to 15-month highs. BB yields rose for a fifth straight session to finish near a four-month high of 6.30%
• The broad risk-off mood spilled into the primary market, bringing issuance to a near standstill with no new bond sales launched and just one deal pricing.

(Bloomberg)  US Initial Jobless Claims Fall to Lowest Level Since 1969

• First-time applications for US unemployment benefits fell last week to the lowest level since 1969, signaling layoffs remain muted in a stable labor market.
• Initial claims fell by 22,000 to 187,000 in the week ended July 18, according to Labor Department data released Thursday. The median forecast in a Bloomberg survey of economists called for 210,000 applications.
• Continuing claims, a proxy for the number of people receiving benefits, was little changed at 1.8 million in the previous week.
• The low level of claims suggests employers remain reticent to lay off workers. Still, last month’s jobs report showed many Americans left the labor force, which could also help explain fewer filings for unemployment insurance.

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.