Insight – Cincinnati Asset Management

13 Oct 2025

High Yield Quarterly, Insight CAM Team 0 comment

2025 Q3 High Yield Quarterly

Q3 COMMENTARY
October 2025

In the third quarter of 2025, the Bloomberg US Corporate High Yield Index (“Index”) return was 2.54% bringing the year-to-date (“YTD”) return to 7.22%. The S&P 500 index return was 8.11% (including dividends reinvested) bringing the YTD return to 14.81%. Over the period, while the 10-year Treasury yield decreased 8 basis points, the Index option-adjusted spread (“OAS”) tightened 23 basis points moving from 290 basis points to 267 basis points.

With regard to ratings segments of the High Yield Market, BB-rated securities tightened 3 basis points, B-rated securities tightened 18 basis points, and CCC-rated securities tightened 73 basis points. The chart below from Bloomberg displays the spread move of the Index over the past five years. For reference, the average level over that time period was 355 basis points.

The sector and industry returns in this paragraph are all Index return numbers. The Index is mapped in a manner where the “sector” is broader with the more specific “industry” beneath it. For example, Energy is a “sector” and the “industries” within the Energy sector include independent energy, integrated energy, midstream, oil field services, and refining. The Communications, Other Industrial, and Energy sectors were the best performers during the quarter, posting returns of 3.61%, 3.29%, and 2.88%, respectively. On the other hand, Technology, Capital Goods, and Basic Industry were the worst performing sectors, posting returns of 1.42%, 1.89%, and 1.93%, respectively. At the industry level, media, refining, and healthcare REIT all posted the best returns. The media industry posted the highest return of 5.74%. The lowest performing industries during the quarter were packaging, paper, and chemicals. The packaging industry posted the lowest return of 0.17%.

Issuance
The first half of the year had fairly strong issuance with Q1 posting $86.6 billion and Q2 posting $78.2 billion. The third quarter continued the strong trend but posted true blowout issuance of $139.5 billion. Of the issuance that did take place during Q3, Discretionary took 28% of the market share followed by Communications at 16% and Financials at 14%.

The Federal Reserve did hold the Target Rate steady at the July meeting and then made a 25 basis point cut at the September meeting. There was no meeting held in August. The current Fed easing cycle stands at 125 basis points in total cuts and kicked off in September of last year. However, the recent cut was the first cut in 2025. The Fed dot plot shows an additional 50 basis points of cuts expected for the year. Currently, market participants are pricing in an implied rate move of 47 basis points in cuts for 2025 making their forecast right in line with the Fed.ⁱ

After the September meeting, Fed Chair Jerome Powell commented on the weakening labor market. “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.”ⁱⁱ Inflation remains a concern for the Fed with a worry that tariffs have yet to fully work through the system. A softening labor market and stubborn inflation is a tough needle for the Fed to try and thread. That leaves some differing opinions on the best forward rate path. In fact, seven of the nineteen members project zero additional cuts in 2025. Powell acknowledged the varied perspectives and noted it is currently a “meeting-by-meeting situation.”

Intermediate Treasuries decreased 8 basis points over the quarter, as the 10-year Treasury yield was at 4.23% on June 30th, and 4.15% at the end of the third quarter. The 5-year Treasury decreased 6 basis points over the quarter, moving from 3.80% on June 30th, to 3.74% at the end of the third quarter. Intermediate-term yields more often reflect GDP and expectations for future economic growth and inflation rather than actions taken by the FOMC to adjust the target rate. The revised second quarter GDP print was 3.8% (quarter-over-quarter annualized rate). Looking forward, the current consensus view of economists suggests a GDP for 2026 around 1.8% with inflation expectations around 2.7%.ⁱⁱⁱ

The Bloomberg US Corporate High Yield Index ended the third quarter with a yield of 6.70%. Treasury volatility, as measured by the Merrill Lynch Option Volatility Estimate (“MOVE” Index), has moved below the 80 index average over the past 10 years. The current rate of 73 is well below the spike near 200 back during the March 2023 banking scare. The most recent spike reached a high of 140 in April of 2025 as the market grappled with numerous tariff changes. The MOVE Index has maintained a downward trend since the April spike. Data available through August shows 22 bond defaults this year which is relative to 16 defaults in all of 2022, 41 defaults in all of 2023, and 34 defaults in all of 2024. The trailing twelve-month dollar-weighted bond default rate is 1.88%.^iv The current default rate is relative to the 1.85%, 2.13%, 1.72%, 1.98% default rates from the previous four quarter-end data points listed oldest to most recent. Defaults are generally stable and the fundamentals of high yield companies are in decent shape. From a technical view, fund flows were positive this year through August data at $14.1 billion.^v No doubt there are risks, but we are of the belief that for clients that have an investment horizon over a complete market cycle, high yield deserves to be considered as part of the portfolio allocation.

The high yield market performed well throughout Q3. As the quarter closed, the government went into a shutdown as Congress failed to reach a budget agreement. These shutdowns have historically created more headline-driven volatility than any lasting market dislocations. They happen during Republican and Democratic administrations alike and vary quite a bit in length. Since 1990, there have been 6 previous shutdowns which lasted an average of 14 days. However, the range of the previous 6 shutdowns has been between 3 days and 35 days. There will certainly be plenty to evaluate as we move to finish out the year. Our exercise of discipline and credit selectivity is important as we continue to evaluate that the given compensation for the perceived level of risk remains appropriate. As always, we will continue our search for value and adjust positions as we uncover compelling situations. Finally, we are very grateful for the trust placed in our team to manage your capital.

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. Gross of advisory fee performance does not reflect the deduction of investment advisory fees. Our advisory fees are disclosed in Form ADV Part 2A. Accounts managed through brokerage firm programs usually will include additional fees. Returns are calculated monthly in U.S. dollars and include reinvestment of dividends and interest. The index is unmanaged and does not take into account fees, expenses, and transaction costs. It is shown for comparative purposes and is based on information generally available to the public from sources believed to be reliable. No representation is made to its accuracy or completeness. Additional disclosures on the material risks and potential benefits of investing in corporate bonds are available on our website: https://www.cambonds.com/disclosure-statements/.

ⁱ Bloomberg October 1, 2025: World Interest Rate Probability
ⁱⁱ Bloomberg September 17, 2025: Fed Cuts Rate by Quarter-Point; Powell Cites Weakness in Jobs
ⁱⁱⁱ Bloomberg October 1, 2025: Economic Forecasts (ECFC)
^iv Moody’s September 15, 2025: August 2025 Default Report and data file
^v Bloomberg October 1, 2025: Fund Flows

13 Oct 2025

Insight, Investment Grade Quarterly CAM Team 0 comment

2025 Q3 Investment Grade Quarterly

Third Quarter Recap & Outlook
October 2025

The third quarter of 2025 was astoundingly benign relative to the one that preceded it. The volatility that accompanied early-April tariff announcements seems like a distant memory at this point, although it is worth noting that investment grade credit was one of the best-behaved asset classes during the second quarter malaise. During the third period, IG credit performed well again, delivering its best quarter of the year thus far as bonds benefited from the one-two punch of tighter spreads and declining Treasury yields.

The Option Adjusted Spread (OAS) for the Bloomberg US Corporate Bond Index (The Index) traded within a tight range of 11 basis points during the third period, never closing wider than 83 at the beginning of the quarter and never closing below 72, which set a new 27-year low for the measure. The Index reached its record-breaking level of 72 on September 18th, a day after the first Fed rate-cut since December 2024, and it closed at that level two additional times thereafter. The Index finished the quarter at an OAS of 74, making it 9 basis points tighter during the third period.

Treasury yields moved lower during the quarter, with most of that move taking place in shorter maturities, which are more levered to the Fed’s policy rate than intermediate maturities. The 2yr, 5yr and 10yr Treasuries finished the period 11, 6 and 8 basis points lower, respectively.

Buy the Yield, Not the Credit Spread

The carry of higher yields continued to deliver for investors during the quarter. Although the yield to maturity for The Index declined from 5% to 4.82% during the period, it remained elevated relative to the 10yr average of 3.82% for such a measure. Think of it this way, an investor in The Index that elects to hold bonds to maturity will earn an annual return equivalent to the yield to maturity at the time of investment if there is no movement in credit spreads or in the underlying Treasuries, assuming no impairment from credit losses.

Higher yields provide a larger margin of safety amid an environment of narrow credit spreads. One measure bond portfolio managers use to project downside protection is called a “breakeven” calculation. For example, CAM’s IG Portfolio composite at the end of August had a 4.76% yield to maturity and a modified duration of 5.69. Its breakeven was 83.6, which would mean that the portfolio could tolerate about 84 basis points of spread widening before generating a negative total return over the course of a one-year period. Going back to the ultra-low-rate era of 2020, the data for the CAM IG composite at the end of August 2020 showed a yield to maturity of 1.78% with a duration of 6.18 and a breakeven of just 29 basis points. Comparing that to a hypothetical “new money” portfolio in the adjacent chart yields a breakeven calculation of 69 basis points for CAM’s IG program. This is a simplistic analysis that does not include the benefit of roll-down, Treasury movement or other variables but it is illustrative in showing how higher all-in yields provide an element of downside protection amid an environment of narrow credit spreads.

IG Credit Health, Very Good & Getting Better

There is no denying that credit spreads are tight, and for good reason. IG corporate fundamental credit metrics are broadly strong. Through the end of the second quarter for nonfinancial issuers within the Index, EBITDA margins hit a record high of 31.1% while there was incremental improvement in both net leverage (2.9x) and interest coverage (11.6x).ⁱ

Default rates for IG-rated issuers have historically been infinitesimally low which can lead to lower risk premiums during periods of market strength. According to data compiled by Standard & Poor’s, of the 3,556 global defaults that occurred from 1981-2024 just 91 were investment grade rated companies. Roughly half of those were the result of speculative bubbles: 20 of them occurred during the dot-com blow-up of 2001-2002 and 25 occurred during the GFC of 2008-2009.ⁱⁱ An active manager of IG-credit should endeavor to avoid defaults entirely and that is one of the reasons that we strive to structure CAM’s portfolio to minimize volatility and we are quick to exit existing holdings if our analysis points to the potential for impairment.

Strong Investor Demand, Issuers Happy to Oblige

Supply of new investment grade bonds was substantial in 2024 and has remained so in 2025 with September marking the fifth-largest monthly total for volume on record and the second busiest month ever outside of the COVID-era borrowing binge.ⁱⁱⁱ This supply has been easily absorbed by institutional investors that have ample capital to deploy from inflows and who are eager to achieve bogeys for the purpose of asset-liability-matching. There is an expectation among market participants that IG supply could slow in the fourth quarter of the year which has the potential to drive credit spreads tighter. There simply aren’t enough bonds to go around.

The CAM Investment Grade Strategy utilizes the new issue market in an opportunistic manner for client accounts. Even though investor demand has been robust, most new deals have continued to offer a concession to incent buyers to participate in the new debt offering. According to research compiled by J.P. Morgan, on average, bonds issued during the month of September tightened by 4.3 basis points from the day of issuance until month-end.^iv

The Fed Eased, More to Come?

The FOMC met twice during the third quarter, in July and September. It elected to hold its policy rate steady at the first meeting and it delivered a 25bp cut on September 17th. The Central Bank has two meetings remaining in 2025; at the end of October and during the second week of December. At quarter end, Fed Funds Futures were pricing a 96.7% chance of a cut at the October meeting and a 77.6% chance of a cut in December.^v This was consistent with the release of the Fed’s Summary of Economic Projections (dot plot) at its September meeting. The dot plot came in slightly more dovish than the June version with the September version indicating that the median projection of FOMC members favored 50 basis points of additional cuts this year and an additional 25 basis points in 2026. It is important to note that the SEP is a snapshot in time and the data is released on a quarterly basis. Among 19 FOMC meeting participants, six projected no additional cuts by the end of 2025 and nine projected 50 basis points while there was one outlier response of 125 basis points.^vi

We believe that there is good reason for the disparity in projections for the path of the policy rate given the highly bifurcated nature of the current economic backdrop. There are some sectors of the economy that are struggling. New home construction is one such industry which has been beleaguered by higher mortgage rates, higher input prices as a result of tariffs and the inability to secure enough skilled labor. Nothing happens in a vacuum and challenges in new home construction have upstream and downstream effects on chemical companies, home improvement retailers and even broadband providers due to a lack of new household formation. Meanwhile, other sectors of the economy, like Technology, remain red hot. The probability of a near term recession has decreased significantly since April but the economic growth engine is becoming less diversified, and riskier as a result. Artificial Intelligence capital expenditures have had an outsize impact on the growth of U.S. GDP through the first half of the year.^vii Consumer spending has held up well, and arguably even exceeded expectations, but consumption has become increasingly reliant on higher income consumers with the top 10% of earners accounting for 50% of all spending.^viii The latest estimate of The Federal Reserve Bank of Atlanta’s measure of GDPNow was +3.8%, a far cry from recession, but the overreliance on AI-spend and higher-income consumers along with a labor market that has clearly slowed in recent months is keeping us cautious about the sustainability of economic growth.^ix

Staying The Course

As we turn the page to the final quarter of the year we plan to remain selective while positioning client portfolios. We favor sectors and industries that have credit metrics that are not easily influenced by tariffs or surprises to US trade policy. There are enough opportunities in well managed appropriately capitalized companies that there is little reason to tempt fate over a few extra basis points. We plan to stay fully invested and opportunistic. Thank you for your continued interest. Please contact us with any questions about how we can help with your fixed income allocation.

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. Past performance is not a guarantee of future results. Gross of advisory fee performance does not reflect the deduction of investment advisory fees. Our advisory fees are disclosed in Form ADV Part 2A. Accounts managed through brokerage firm programs usually will include additional fees. Returns are calculated monthly in U.S. dollars and include reinvestment of dividends and interest. The Index is unmanaged and does not take into account fees, expenses, and transaction costs. Index returns and related data such as yields and spreads are shown for comparative purposes and is based on information generally available to the public from sources believed to be reliable. No representation is made to its accuracy or completeness.

The information provided in this report should not be considered a recommendation to purchase or sell any particular security. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s portfolio. Fixed income investments have varying degrees of credit risk, interest rate risk, default risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. There is no assurance that any securities discussed herein have been held or will be held in an account’s portfolio at the time you receive this report or that securities sold have not been repurchased. The securities discussed do not represent an account’s entire portfolio and, in the aggregate, may represent only a small percentage of an account’s portfolio holdings, if any. It should not be assumed that any of the securities transactions or holdings discussed were or will prove to be profitable, or that the investment decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein. Upon request, Cincinnati Asset Management will furnish a list of all security recommendations made within the past year.

Additional disclosures on the material risks and potential benefits of investing in corporate bonds are available on our website: https://www.cambonds.com/disclosure-statements/

ⁱ Barclays, September 12 2025, “US Investment Grade Credit Metrics Q2 25 Update: Further improvement”
ⁱⁱ S&P Global, March 27 2025, “Default, Transition, and Recovery: 2024 Annual Global Corporate Default and Rating Transitions Study”
ⁱⁱⁱ Bloomberg, October 1 2025, “BofA Surprised by September’s Record Corporate-Bond Binge”
^iv J.P. Morgan, October 2 2025, “US Corporate Credit Issuance Review”
^v Bloomberg, September 30 2025, “World Interest Rate Probability (WIRP)”
^vi Federal Open Market Committee, September 17 2025, “Summary of Economic Projections”
^vii Fortune, September 23 2025, “The AI boom is unsustainable unless tech spending goes ‘parabolic,’ Deutsche Bank warns: ‘This is highly unlikely’”
^viii Bloomberg, September 16 2025, “Top 10% of Earners Drive a Growing Share of US Consumer Spending”
^ix Federal Reserve Bank of Atlanta, October 1 2025, “GDPNow”

26 Sep 2025

Insight, Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Credit spreads will finish wider this week for the first time in the past four weeks. The index has traded within a tight 9bp range since mid-July so any move tighter or wider during that time period has been incremental at best. The OAS on the Corporate Index closed at 75 on Thursday September 25^th after closing the week prior at 72. Treasury yields moved slightly higher throughout the week. The 10yr Treasury yield closed last week at 4.13% and was 4.18% as we went to print on Friday afternoon. Through Thursday, the Corporate Bond Index year-to-date total return was +6.53% while the yield to maturity for the index was 4.86%.

News & Economics

The data this week echoed a familiar refrain: never bet against the U.S. consumer. Second quarter real GDP was revised up to 3.8% from 3.3% on the back of improved consumer spending. The PCE index rose 2.7% year-over-year through August while core PCE was 2.9%. While inflation is not running red hot, it remains very stubborn. The most surprising release of the week was a 20.5% surge in new home sales for the month of August. It is worth noting that this data can tend to be extremely volatile and is subject to outsize revisions so there is a widely held belief that this initial release is not entirely accurate. All told, the data this week was rather hawkish. There is still a month to go until the next FOMC meeting on October 29^th, and although interest rate futures are pricing a 90% chance of a cut, we think it is far from a done deal if the data keeps indicating that the economy is holding up just fine.

Next week brings data releases for construction spending, ISM manufacturing and services and then the payroll report for the month of September on Friday morning.

Primary Market

It was a much busier week than expected as $56bln of new investment grade debt was priced this week relative to the estimate of $30bln. Oracle led the way with an $18bln print and other large issuers of note included Broadcom, Dell and Lowe’s. Next week, syndicate desks are looking for things to cool off a bit into quarter-end with estimates of about $25bln in new supply.

Flows

According to LSEG Lipper, for the week ended September 17, investment-grade bond funds reported a net inflow of +$2.18bln. This marked the 19^th straight week of inflows and is the largest such streak since 2021. Total year-to-date flows into investment grade were +$47.4bln.

26 Sep 2025

High Yield Weekly, Insight Rich Balestra - Portfolio Manager 0 comment

CAM High Yield Weekly Insights

(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.

19 Sep 2025

Insight, Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Credit spreads look as though they will finish the week slightly tighter again. These have not been big moves tighter the last few weeks but more of an incremental grind lower. The OAS on the Corporate Index closed at 72 on Thursday September 18^th after closing the week prior at 74. Treasury yields drifted higher throughout the week and are now off their lows across the curve. The 10yr Treasury yield closed last week at 4.06% and was 4.12% as we went to print mid-morning on Friday. Through Thursday, the Corporate Bond Index year-to-date total return was +7.03% while the yield to maturity for the index was 4.76%.

News & Economics

The highlight of the week was the FOMC release and 25bp rate cut, which was essentially baked-in leading up to the meeting. The updated SEP (dot plot) indicated 50bps of additional easing over the two remaining meetings of the year (no November meeting). During his press conference, Chairman Powell was neither hawkish nor dovish, in our view, and retained a neutral stance. He chose his words carefully during the presser, and in our opinion made it clear that the FOMC would not be too aggressive with easier monetary policy with inflation still stubbornly elevated above the Fed’s target and with too many unknowns that have yet to filter their way through the economy with regard to trade policy.

Primary Market

It was a solid week for the primary market as companies priced $34bln of new debt, besting dealer estimates of $30bln. Next week dealers are looking for another $30bln as the market backdrop remains accommodative for both borrowers and investors.

Flows

19 Sep 2025

High Yield Weekly, Insight Rich Balestra - Portfolio Manager 0 comment

CAM High Yield Weekly Insights

(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.

12 Sep 2025

High Yield Weekly, Insight Rich Balestra - Portfolio Manager 0 comment

CAM High Yield Weekly Insights

(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

12 Sep 2025

Insight, Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Credit spreads inched tighter again this week as they have remained in a relatively tight 5bp range over the course of the past month. The OAS on the Corporate Index closed at 75 on Thursday September 11^th after closing the week prior at 77. Treasury yields exhibited little change over the past week through Friday morning. The 10yr Treasury yield was 4.07% as we went to print. Through Thursday, the Corporate Bond Index year-to-date total return was +7.31% while the yield to maturity for the index was 4.72%.

News & Economics

Economic highlights this week included PPI and CPI, both of which came within the realm of expectations. Consumer sentiment data released on Friday morning was softer than expected. The economic releases this week did little to derail the prevailing market narrative that the Fed will look to deliver a cut next Wednesday. On Friday morning, interest rate futures were pricing a >100% chance of a 25bp move lower in Fed Funds with a high probability of additional cuts at the October and December meetings. Next week will also bring economic releases for retail sales, industrial production and housing starts.

Primary Market

The primary market was busy again this week as $38bln was priced through Thursday with up to another $1bln looking to price on Friday. This figure was lighter than dealer forecasts of $45-$50bln. Next week syndicate desks are looking for around $30bln of new supply shaded toward Monday and Tuesday. Wednesday FOMC releases are almost always a “no-go” for new supply as issuers prefer to stand down in the wake of the potential rate and spread volatility that can accompany the FOMC post-meeting presser.

Flows

According to LSEG Lipper, for the week ended September 10, investment-grade bond funds reported a net inflow of +$2.7bln. Total year-to-date flows into investment grade were +$45.2bln.

05 Sep 2025

Insight, Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Credit spreads look poised to finish the week tighter, which is a remarkable feat given the deluge of new issue supply during the period. The OAS on the Corporate Index closed at 77 on Thursday September 4^th after closing the week prior at 79. Spreads are a smidge tighter on Friday as we go to print in the late afternoon. Treasury yields are set to finish the week meaningfully lower after another weak jobs report to start the Friday trading session. The 10yr Treasury yield closed last week at 4.23% and it is wrapped around 4.07% on Friday afternoon. Through Thursday, the Corporate Bond Index year-to-date total return was +5.95%.

News & Economics

The big news this week was on Friday morning with the release of the nonfarm payrolls report for the month of August. The BLS report showed that employers added just 22,000 jobs in August while the street was looking for a gain of 75,000. This was the fourth consecutive month of less than 100,000 payroll additions. June payrolls also saw a downward revision which knocked the number for that month into negative territory, making June 2025 the first month of payroll reductions since 2020. Treasury yields moved lower on the back of the release and interest rate futures began to price more than a 100% chance of a 25bp cut when the FOMC convenes on September 17^th. There is still one big datapoint ahead of the September Fed meeting next Thursday with the release of CPI. After several consecutive weak job reports accompanied with lower revisions it feels like inflation would need to come in red-hot in order to derail what is likely to be the first decrease in the Fed’s policy rate since December 2024. Futures are also pricing a high probability of cuts at both the October and December meetings as well (no meeting in November).

Primary Market

It was the busiest week of 2025 for the primary market, which is especially impressive considering Monday was a market holiday. Companies priced more than $67bln of new debt in just three trading days as there was no activity on Friday to make way for the jobs report. 2025’s pace of issuance now just slightly trails 2024 to the tune of -2%. Next week is expected to be another busy one with syndicate desks looking for companies to issue up to $50bln in new debt.

Flows

According to LSEG Lipper, for the week ended September 3, investment-grade bond funds reported a net inflow of +$2.6bln. Total year-to-date flows into investment grade were +$42.5bln.

05 Sep 2025

High Yield Weekly, Insight Rich Balestra - Portfolio Manager 0 comment

CAM High Yield Weekly Insights

(Bloomberg) High Yield Market Highlights

US junk bonds have recovered from a rocky start to be on course to post gains for the fifth consecutive week. Yields remain within sight of a 40-month low after dropping eight basis points on Thursday to close at 6.74%. The risk premium fell five basis points to 275, just seven basis points higher than the six-month low of 268.
The rally spanned across ratings, driving a boom in supply after a busy summer. The primary market priced almost $10b in just three sessions this week, including nearly $5b on Wednesday, the busiest day in three months. The wave of new bond sales continued on Thursday, with the market pricing more than $3b in a reflection of strong demand and robust risk appetite amid expectations of Fed interest-rate cuts.
The rally gained momentum as equities hit an all-time high. Junk bonds also climbed as the markets fully priced in a rate cut this month after fresh data reinforced the broad consensus that the labor market is cooling. The latest readings show hiring plans fell to the weakest level for any August on record as intended job cuts mounted amid economic uncertainty. Hiring by US companies was less than forecast, in line with other data showing weak labor demand
The advance in the US high-yield market was powered by CCCs, the riskiest assets. CCCs are set for a fifth week of positive returns
BBs are also poised to record gains for a fifth week as yields linger close to a three-year low.
Market bets for a rate cut improved after Fed Governor Christopher Waller said earlier in the week that the central bank should begin lowering rates this month and make “multiple cuts in the coming months.”

(Bloomberg) Weak US Payroll Gain of 22,000 Cements Case for Fed Rate Cut

US job growth cooled notably last month while the unemployment rate rose to the highest since 2021, fanning concerns the labor market may be on the cusp of a more significant deterioration.
Nonfarm payrolls increased 22,000 in August, according to a Bureau of Labor Statistics report out Friday. Revisions showed employment shrank in June — the first payrolls decline since 2020. The jobless rate ticked up to 4.3%.
Traders solidified bets that the Federal Reserve will cut interest rates at its Sept. 16-17 meeting, which Chair Jerome Powell signaled in a speech last month during the central bank’s annual Jackson Hole symposium. Stock futures and Treasuries rallied following the report.
The figures will likely heighten concerns about the durability of the labor market after the prior month’s report showed a shockingly cooler hiring picture than previously thought. Job gains have moderated materially in recent months, openings have declined and wage gains have eased, all of which are weighing on broader economic activity.
Several sectors, including information, financial activities, manufacturing, federal government and business services, posted outright declines in August. Job growth was concentrated in health care and leisure and hospitality.
While July payrolls were revised slightly higher, the jobs picture looked even worse in June. The adjustments follow the sizable downward revisions seen in the last jobs report, which were the largest since 2020.
Accounting for the revisions in this report, employment growth in the last three months has averaged just 29,000. Payrolls have come in under 100,000 for four straight months, extending the weakest stretch of job growth since the pandemic.

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