Category: Insight

20 Jun 2025

CAM High Yield Weekly Insights

(Bloomberg)  High Yield Market Highlights

 

 

  • US junk bond yields held steady, with spreads still at a three-year low fueling a wave of new bond sales to push June’s tally to nearly $22b. That’s already 23% more than the full month of June 2024 and up almost 70% on June 2023.
  • The market awaits the pricing of a $5b, five-year debt sale by Elon Musk’s xAI, split into loans and bonds. Pricing and allocation expected sometime later today.
  • As yields held steady and with spreads still hovering near 300 basis points, the primary market is inundated with supply, driving the week’s volume to nearly $6b
  • The junk bond rally lost some momentum on Wednesday after Fed Chair Jerome Powell indicated that the impact of tariffs on prices will show up later this summer
  • Fed’s new forecasts showed weaker growth, higher inflation and higher unemployment. This prompted Fed officials to project two rate cuts this year
  • The gains across the high yield market are modest even as junk bonds head for a fourth week of gains

 

(Bloomberg)  Fed Officials Hold Rates Again, Still See Two Cuts by Year End

  • Federal Reserve officials continued to pencil in two interest-rate cuts in 2025, though new projections showed a growing divide among policymakers over the trajectory for borrowing costs as tariffs make their way through the US economy.
  • The Federal Open Market Committee voted unanimously on Wednesday to hold the benchmark federal funds rate in a range of 4.25%-4.5%, as they have since the beginning of the year. They also released new economic forecasts — their first since President Donald Trump unveiled a sweeping set of tariffs in April — showing they expect weaker growth, higher inflation and higher unemployment this year.
  • Speaking to reporters following the decision, Chair Jerome Powell repeated his view that the central bank was “well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.”
  • Interest-rate projections released alongside the decision show a split: Seven officials now foresee no rate cuts this year, compared with four in March, and two others pointed to one cut. At the same time, 10 officials expect it will be appropriate to lower rates at least twice before the end of 2025.
  • In the run-up to this month’s meeting, many officials signaled their preference to hold rates steady for some time as they wait for clarity on how Trump’s economic policies will affect inflation and the broader economy.
  • Asked about the division in officials’ rate projections, Powell downplayed it. Given the high level of uncertainty in the economy, he said, “No one holds these rate paths with a lot of conviction.”
  • In their updated economic forecasts, officials raised their median estimate for inflation at the end of 2025 to 3% from 2.7%. They marked down their forecast for economic growth in 2025 to 1.4% from 1.7%.
  • They forecast an unemployment rate of 4.5% by the end of the year, up slightly from their previous estimate.
  • The projections reflected the thorny situation facing Fed policymakers.
  • Growing inflationary pressures typically suggest the Fed policy should restrain the economy with elevated rates, while weakening growth calls for stimulus through lower rates. Trump this year has repeatedly pushed for the Fed to cut rates, arguing the central bank under Powell has often been late to adjust policy.
  • Neither employment nor inflation data have yet shown a substantial impact from tariffs. A measure of underlying consumer inflation rose in May by less than forecast, spurring Trump to renew his call for lower rates.
  • Powell said the committee continued to expect tariffs to work their way into final prices, but that it would take time.
  • “Ultimately the cost of the tariff has to be paid and some of it will fall on the end consumer,” he said. “We know that because that’s what businesses say, that’s what the data say from the past.”
  • “We know that’s coming and we just want to see a little bit of that before we make judgments prematurely,” he added.

 

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.

20 Jun 2025

CAM Investment Grade Weekly Insights

Credit spreads were unchanged this week through Wednesday, while the capital markets were closed on Thursday in observance of Juneteenth.  The tone is little changed this Friday morning as we go to print with the US Corporate Bond Index wrapped around a spread (OAS) of 85.  The 10yr Treasury yield moved slightly higher this week as the benchmark went from 4.40% at the end of last week to 4.43% early Friday morning.  Market sentiment is cautious overall given the backdrop of geopolitical uncertainty.  Through Wednesday, the Corporate Bond Index year-to-date total return was +2.92% while the yield to maturity for the Index closed the day at 5.18%.

 

 

Economics

Retail sales were soft this week, though a large part of that move was driven by a decline in auto-sales.  Still, it points to continuing struggles for the retail industry driven by tariff uncertainty.  The May industrial production report was better than feared as the gauge continued to muddle along with some pockets of strength.  Housing starts and permits data was very soft as total housing starts fell almost 10% in May driven by multifamily.  There are a multitude of headwinds for the housing sector, most especially the high cost to build, elevated cost of capital and stubbornly high mortgage rates.

The highlight of the week was the FOMC meeting where the central bank held rates steady in what was a unanimous decision by all 12 voting members.  There are some diverging views of committee members when looking at the Summary of Economic Projections (dot plot).  The most recent version of the dots, released every three months, showed that the median FOMC member continued to expect 50bps of cuts in 2025.  There were a number of committee members that believed the FOMC should remain on hold all year and that grew from 4 members to 7 members since the last dot plot in March.  We continue to expect 1-2 cuts in 2025 as our base case but 3 or 4 cuts is a distinct possibility if the economy continues to soften.

There are some interesting prints next week including PMI, existing home sales, GDP, durable goods and finally the Fed’s preferred inflation gauge on Friday morning, core PCE.

Primary Market

Issuance was in line with expectations this week as $18bln of debt priced on Monday & Tuesday.  It was a somewhat disjointed week for the primary calendar with the FOMC meeting on Wednesday and a market holiday on Thursday.  YTD issuance stands at $853.2bln, slightly ahead of 2024’s pace.  The street is looking for $20-$25bln of issuance next week with most of that activity expected in the front half of the week.

Flows

According to LSEG Lipper, for the week ended June 18, investment-grade bond funds reported their third consecutive week of inflows at +$929.6m. Total year-to-date flows into investment grade were +$17.23bln.

 

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.

13 Jun 2025

CAM High Yield Weekly Insights

(Bloomberg)  High Yield Market Highlights

 

 

  • US junk bonds may snap a 13-day gaining streak after Israel’s strikes on Iran’s nuclear sites sparked a flight to haven assets, including US Treasuries and gold. US equity futures retreated as investors await Iran’s response amid concern the conflict could widen.
  • US junk bond yields held steady at 7.36% on Thursday, and spreads were range-bound, closing at 306 basis points and pushing positive returns for the 13th consecutive session. The primary market has slowed down after a torrid pace of issuance drove supply to nearly $16b so far this month.
  • The modest gains in the US junk bond market extended across ratings. CCC yields fell 10 basis points to 11.28% on Thursday. Spreads closed lower at 710, fueling small gains for the second session in a row
  • BB yields closed flat at 6.14% and spreads closed at 183, driving positive returns for the fourth straight session
  • The rally in the US high yield market was partly prompted by renewed bets that the Federal Reserve will cut rates twice this year as inflation moderates. It was also fueled by cash inflows into the asset class
  • Credit continues to benefit from strong demand, Barclays strategists Brad Rogoff and Dominique Toublan wrote in note this morning. Current backdrop remains supportive for credit, and expect valuations to remain steady in the near term, they wrote
  • Steady returns, attractive yields, and cash inflows into the asset class drove primary market supply
  • The pipeline is building as borrowers stream in to take advantage of strong demand for yield

 

(Bloomberg)  US Core Inflation Rises Less Than Forecast for Fourth Month

  • Underlying US inflation rose in May by less than forecast for the fourth month in a row, suggesting companies are largely holding back on passing higher tariff costs through to consumers.
  • The consumer price index, excluding the often volatile food and energy categories, increased 0.1% from April, according to Bureau of Labor Statistics data out Wednesday. From a year ago, it rose 2.8%.
  • Goods prices, excluding food and energy commodities, were unchanged. New and used-car prices both declined, as did apparel. Meanwhile, services prices minus energy rose 0.2%, a deceleration from the prior month and reflecting a decline in airfares and hotel stays.
  • Treasuries rallied, the dollar declined and the S&P 500 opened higher after the report. Interest-rate swaps showed traders see a 75% probability that the Federal Reserve will cut borrowing costs by September.
  • The string of below-forecast inflation readings adds to evidence that consumers have yet to feel the pinch of President Donald Trump’s tariffs — perhaps because the most punitive levies have temporarily been on pause, or thanks to companies so far absorbing the extra costs or boosting inventory ahead of tariffs.
  • However, if higher tariffs set in, shielding consumers from those costs will become more difficult, which is partly why economists expect firms to raise prices more meaningfully in the coming months.
  • “The build-up of inventory in advance of the tariff hikes may be contributing to delayed pass through, while huge uncertainty in US trade policy may have affected the speed with which firms wish to adjust prices,” Brian Coulton, chief economist at Fitch Ratings, said in a note. “But a rise in core goods inflation in the months ahead still looks very likely.”

 

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.

13 Jun 2025

CAM Investment Grade Weekly Insights

Credit spreads were slightly tighter this week through Thursday but tensions are high this Friday morning as the market processes recent developments in the Middle East.  The US Corporate Bond Index closed last week at 85 and it was at 84 when the market closed this Thursday.  The market is generically 1-2 bps wider Friday mid-morning as we go to print and equities were also getting hit in a risk-off move related to Israel and Iran.  The 10yr Treasury yield was solidly lower (-15bps) on the week, moving from 4.51% at the end of the last week to 4.36% through Thursday.  Rates have moved steadily lower since May 21 when the 10yr closed at 4.60% but the current yield is still very close to the YTD average of 4.41%.  Through Thursday, the Corporate Bond Index year-to-date total return was +3.14% while the yield to maturity for the Index closed the day at 5.14%.

 

 

Economics

The data was mixed this week but for the most part it continued to show that the U.S. economy has held up well in the face of uncertain trade policy.  The Consumer Price Index showed an increase of +0.1% for May and +2.4% year over year.  This CPI print was a benign one for inflation indicating that tariffs have not yet had the impact that many expected, although it is still early days.  The US Producer Price Index was also a bit softer than some investors had feared showing an increase of +0.1% in May.  Finally on Friday, consumer sentiment data showed improvement and inflation expectations also eased.  Bottom line, it was a pretty good week for inflation.

Next week brings a busier calendar with most of the action taking place on Tuesday and Wednesday.  Retail sales numbers for May will be released on Tuesday as well as data on import prices and industrial production.  Housing starts will be released Wednesday morning and then the FOMC rate decision will occur that afternoon.  We are firmly in the pause camp for this meeting and expect that the Fed will elect to hold its policy rate steady.

Away from economics, investors will continue to monitor the situation in the Middle East as Israel has carried out airstrikes against some of Iran’s nuclear and military facilities.  Escalation could be negative for risk assets and it would likely send oil prices higher.

Primary Market

Issuance was just a bit light relative to expectations this week as companies priced $20.5bln of new debt while the street had been looking for $25bln.  It wasn’t a terribly exciting week of issuance in our view as it was mostly comprised of less frequent, less attractive issuers with concessions that were not overly appealing.  YTD issuance stands at $835.2bln just slightly ahead of 2024’s pace.  Next week is expected to be on the quiet side with dealers looking for $15-$20bln of new supply concentrated on Monday and Tuesday.  With the FOMC meeting on Wednesday and a market holiday for Juneteenth on Thursday, it adds up to a light week.

Flows

According to LSEG Lipper, for the week ended June 11, investment-grade bond funds reported another strong week of inflows at +$2.29bln. Total year-to-date flows into investment grade were +$16.3bln.

 

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.

06 Jun 2025

CAM High Yield Weekly Insights

(Bloomberg)  High Yield Market Highlights

  • US junk bonds are headed for the second consecutive week of gains after eight straight sessions of positive returns, the longest winning streak since August of last year. Yields still hovered near a three-month low and spreads near 300 basis points. The broad rally is spurred partly expectations that Federal Reserve may lower interest rates sooner than previously expected on weaker-than-expected data.
  • The gains are also fueled by steady cash intake by US high yield funds. These funds report an inflow of $1.5b for week ended June 4, the sixth successive week of cash inflows for these funds, according LSEG Lipper.
  • Steady cash inflows into high yield funds, attractive yields and relatively low risk premium as reflected in spreads, inundated the primary market with 13 borrowers selling $13.25b this week, the busiest since week ended May 10, 2024
  • Strong demand for higher yields is expected to drive supply in the coming weeks.
  • The broad rally in the US junk bond market spanned across ratings, with the exception of CCCs, the riskiest part of the market
  • BB yields also hovered near a three-month low and spreads closed at 180 basis points, posting gains for the eighth straight session, also the longest since August
  • Single B yields were at 7.32% and spreads at 295 pushing returns for eight straight sessions as the week comes to close

US Jobs Report Points to Gradual Moderation in Labor Market

  • US job growth moderated in May and the prior months were revised lower, indicating employers are cautious about growth prospects as they weigh the Trump administration’s economic policy.
  • Nonfarm payrolls increased 139,000 last month after a combined 95,000 in downward revisions to the prior two months, according to Bureau of Labor Statistics data out Friday. The unemployment rate held at 4.2%, while wage growth accelerated.
  • The payrolls figure, which was slightly better than expectations, helps alleviate concerns of a rapid deterioration in labor demand as companies contend with higher costs related to tariffs and prospects of slower economic activity. President Donald Trump’s decision to pause some of the more punitive import duties, including those on China, has helped lift sentiment among businesses as well as consumers.
  • “Employers have been ‘hoarding labor’ in the face of massive corrosive uncertainty,” Carl Weinberg, chief economist at High Frequency Economics, said in a note. “It costs money to fire workers, and we believe firms have been reluctant to lay off workers until they saw the extent of the Trump tariffs.”
  • Treasury yields rose, the S&P 500 opened higher and the dollar appreciated as traders trimmed bets the Federal Reserve will lower interest rates this year.
  • The labor market report wraps up a week of disappointing economic data that included a further increase in applications for jobless benefits and weaker services activity.
  • The advance in payrolls reflected strength at service providers, including health care and social assistance as well as leisure and hospitality.
  • At the same time, industries that are more exposed to tariffs flashed warning signs. Manufacturing payrolls dropped 8,000 last month, the most this year, while employment growth in transportation and warehousing rose slightly after declining in each of the prior two months. Employment at temporary-help agencies fell by the most since October.
  • The household survey, meanwhile, showed a 254,000 increase in the number of people who went from employed to out of work during the month. That was the biggest rise since the start of 2022.
  • Another major question for economists and policymakers is the extent to which Trump’s efforts to cut back on government spending will take a toll on employment. The federal government shed 22,000 jobs in May, the most since 2020.
  • Economists contend that at least half a million US jobs could be on the line as federal spending cuts spread to contractors, universities and others who rely on public funding.
  • “Cracks in the façade of labor market resilience are now starting to show and the longer the tariff uncertainty and government spending cuts continue the worse the labor market reports are bound to be,” Scott Anderson, chief US economist at BMO Capital Markets, said in a note.
  • The reports showed the size of the labor force shrank by the most since the end of 2023, helping keep the jobless rate steady even as more people became unemployed.
  • The participation rate — the share of the population that is working or looking for work — fell to a three-month low of 62.4% in May. The rate for those between the ages of 25 and 54, known as prime-age workers, also declined.
  • For the Fed, officials have indicated they’re in no rush to cut rates until they get further clarity on the impact the administration’s policies will have on the economy — including the labor market. Research by the New York Fed showed this week that as local companies begin dealing with higher costs from Trump’s trade policy, there were “some signs that the sharp and rapid increase in tariffs affected employment levels and capital investments.”

 

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.

06 Jun 2025

CAM Investment Grade Weekly Insights

Credit spreads were little changed this week.  The US Corporate Bond Index closed last week at 88 and it was at the same level when the market closed this Thursday.  The 10yr Treasury yield was also nearly unchanged this week through Thursday moving from 4.40% lasts week to 4.39% through Thursday’s close.  The benchmark rate had moved up to 4.48% by midday Friday on the back of a “decent” Friday morning payroll report.  Through Thursday, the Corporate Bond Index year-to-date total return was +2.53% while the yield to maturity for the Index closed the day at 5.21%.

 

 

Economics

There was plenty of economic news this week. JOLTS kicked things off coming in slightly better than expectations.  Data showed that job openings increased in April and the March number caught an upward revision.  ISM manufacturing missed to the downside for the month of May, remaining in contraction territory.  Construction spending posted a big miss to the downside, and was much lower than expected for the month of April.  Lousy spring weather could have played a part but so too could tariff related fears, as total construction spending through the April report was down 1.5% relative to the same time period in 2024.  ISM services also came in on the low side, and remained in contraction.  The price component of ISM release increased however which could be a negative indicator with regard to future inflation readings.  Finally on Friday we got some relatively good news for the labor market as the release showed that nonfarm payrolls for the month of May increased by 139k (126k survey) and the unemployment rate remained steady at 4.2%.  There were some more bearish economists looking for a sub-100k print.  This report likely gives the Fed some room to continue to delay its next cut.  On the downside the job numbers for the two previous reports were revised to the tune of -95k which takes some shine off of the numbers from March and April.  Taking it altogether it would be fair to say that the data this week continued to paint a picture of a slowing economy but one that is declining in a moderate fashion that looks like more of a soft-landing scenario at this juncture.

Across the pond, the ECB elected to cut its policy rate by 25bps.  This makes 200bps of cumulative cuts for the European Central Bank since June of 2024.  The ECB is now well ahead of the FOMC’s 100bps of cumulative cuts.  Commentary from ECB president Lagarde indicated that central bank is near the end of its cutting cycle.

After two weeks of a bevy of economic releases, next week is on the lighter side, but there are a couple of highlights with CPI and PPI on Wednesday and Thursday, respectively.  Looking further ahead, the June FOMC rate decision is on Wednesday the 18th.  Barring an unforeseen exogenous shock over the next dozen days it is all but certain that the Fed will elect to hold rates steady at its June meeting.

Primary Market

It was an active week for the IG primary market but total volume of $26.2bln fell short of the $30bln estimate.  New issue concessions remained sparingly narrow as most deals in recent weeks have been priced to perfection.  Dealers are looking for $25bln in new supply next week with most activity centered on Monday and Tuesday.  Year-to-date issuance through this week stood at $814.7bln which was +4% ahead of 2024’s pace.

Flows

According to LSEG Lipper, for the week ended June 4, investment-grade bond funds reported their largest inflow of the year, a whopping +$4.11bln. Total year-to-date flows into investment grade were +$14.02bln.

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.

30 May 2025

CAM High Yield Weekly Insights

 

(Bloomberg)  High Yield Market Highlights

 

  • US junk bonds shrugged off a jump in jobless claims and recurring benefits to rally for a third straight session. Yields and spreads also dropped for the third day to close at 7.46% and 311 basis points, respectively.
  • Attractive all-in yields and still tight spreads have revived the primary market this month after it slowed to a near halt in April. Two more borrowers — oil and gas company Civitas Resources and Goodyear Tire — sold more than $1.2b on Thursday, taking May’s tally to $31b, the busiest month for supply since September 2024.
  • Strong risk appetite accompanied by huge demand is expected to bring more supply in the coming weeks.
  • The broad gains extended across ratings as the markets looked past the Federal appeals court’s decision to allow US tariff policy to continue, temporarily blocking a ruling that threatened to throw out Donald Trump’s tariff agenda.
  • CCC yields, the riskiest part of the junk bond market, tumbled 37 basis points in three sessions this week to close at 11.06%, a two-week low. Spreads dropped 34 basis points this week to 680. Falling yields and tightening spreads drove gains for three sessions in a row.
  • BB yields fell 18 basis points in three sessions to 6.24% and spreads tightened 15bps to 187. BBs notched up gains for three successive sessions.
  • As the week closes, US junk bonds may slow amid cautious sentiment, with equity futures struggling to advance given uncertainty over tariff policies and ahead of more macro data.

 

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.

30 May 2025

CAM Investment Grade Weekly Insights

Credit spreads moved tighter this week.  The US Corporate Bond Index closed last week at 91 and had tightened to 89 as the market closed on Thursday.  The 10yr Treasury yield is lower thus far on the week to the tune of 9bps as we go to print.  The benchmark rate closed last Friday at 4.51% and it was 4.42% by Thursday’s close. Through Thursday, the Corporate Bond Index year-to-date total return was +2.08% while the yield to maturity for the Index closed the day at 5.25%.

 

 

Economics

It was a busy economic calendar this week.  Durable goods orders came in weak after previous releases were stronger than expected as firms piled on orders to get ahead of tariffs.  Consumer confidence showed a rebound in May after five straight months of declines but it still remains at depressed levels.  The latest GDP update for Q1 came in at -0.2% which, although negative, actually exceeded the estimate of -0.3%.  Finally, the most anticipated releases came on Friday morning with personal spending data and core PCE.  Headline PCE rose just 0.1% in April and the year over year measure moved to 2.1% in April from 2.3% in March.  Consumer spending fared okay in April all things considered posting a +0.2% increase led by services.  It feels a bit like a broken record to keep stating that it is simply too early to know what impact tariffs will have on inflation and consumer health but that is the reality.

Next week is another busy one that culminates in an employment report on Friday, June 6th.  Looking further ahead, the next FOMC meeting is on June 18th.  Interest rate futures on Friday morning are pricing just a 2.1% chance of a cut at that meeting.  For contrast, exactly one month ago, amid a bleaker outlook for global trade, those same futures were pricing a 59% chance of cut at the June meeting.  The mood of market participants has certainly changed, but we now wonder if risk assets have retraced too far?

Primary Market

It was a solid if uneventful holiday-shortened week of issuance as companies priced $21.6bln of new debt which was in line with estimates.  Volume for the month of May pushed past $152bln, making it the busiest month of May since 2020 when $242bln was borrowed as companies shored up liquidity during the early days of the pandemic.  Investor demand was strong this week and concessions were meager.  Next week dealers are looking for ~$30bln in new debt.

Flows

According to LSEG Lipper, for the week ended May 28, investment-grade bond funds reported an inflow of +$1.73bln. Total year-to-date flows into investment grade were +$9.91bln.

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.

16 May 2025

CAM High Yield Weekly Insights

(Bloomberg)  High Yield Market Highlights

 

 

  • US junk bonds are headed for their fifth weekly gain on easing trade tensions and signs of a still-resilient economy. The rally was also fueled by bets that the Federal Reserve will cut interest rates at least twice this year after data showed tariffs have had limited impact on inflation so far.
  • Falling spreads and attractive all-in yields attracted a flood of new debt to the primary market. Eleven borrowers sold more than $11b in just four sessions to make it the busiest week since January. Total supply this month is at $19b.
  • The Index yield is set to drop for the fifth straight week, the longest streak since September. It declined 26 basis points in four sessions this week to 7.48%. The Index risk premium fell for the sixth consecutive week, the longest streak in 17 months. It closed at 309 after falling 34 basis points so far this week.
  • The broad gains extended across ratings. CCC yields are on track to drop for the fifth straight week after closing at 11.11% on Thursday. Yields fell 19 basis points in four sessions this week. CCCs are also set to post fifth weekly gains.
  • BB yields are also poised to fall for the fifth successive week after closing at 6.29% on Thursday, down 18 basis points in four sessions. Spreads tightened for the sixth consecutive week to close at 190 basis points, the longest declining streak in more than four years
  • Meanwhile, investors flocked to new issues with big orders following light supply after a frozen market in April and three straight weeks of cash inflows into US high yield funds. US high yield funds reported a cash intake of $2.6b for week ended Wednesday, according to LSEG Lipper
  • More borrowers are expected to take advantage of the broad market rally 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.

16 May 2025

CAM Investment Grade Weekly Insights

Credit spreads moved materially tighter this week as investors embraced risk across all markets on the back of subsiding fears surrounding some of the worst outcomes for global trade.  The US Corporate Bond Index closed last week at 99 and had tightened to 91 as the market closed on Thursday.  The 10yr Treasury yield started the week higher on trade enthusiasm and then traded within a narrow range for most of the week.  The benchmark rate closed last Friday at 4.38% and it was 4.43% by Thursday’s close. Through Thursday, the Corporate Bond Index year-to-date total return was +1.53% while the yield to maturity for the Index closed the day at 5.30%.

 

Economics

There was a bounty of economic data this week.  The CPI print for the month of April was relatively benign.  Core CPI has risen 2.8% over the past year and at an annualized rate of 2.1% over the past three months, which is an improvement relative to the same time period last year.  The FOMC is likely pleased with this print but also cognizant of the fact that it does not fully reflect the rapid change in trade policy.  Retail sales were slightly better than expectations for the month of April and March data was revised higher but, again, there was much noise in the data due to tariff impacts and it will take some time to see how much spring spending was pulled forward by consumers in order to get ahead of price increases.  Both small business and consumer confidence continued to decline, which could impact labor demand and consumer spending in the future.  Finally, housing starts posted a nice bump in April but a deeper dive into the data showed a collapse in building permits suggesting weaker activity in the ensuing months.

Next week is a very light calendar of economic data domestically.  Globally, both the UK and Japan will release inflation numbers that could give investors an idea of what those central bank’s will be looking to do with their policy rates.

Primary Market

It was a brisk week for issuance as companies priced $40bln in new debt besting projections of $35bln.  Concessions were reasonable and investor demand was solid putting the primary market in a “well balanced” state in our view.  To expand a bit on our thoughts, we viewed pricing for most issues this week as favorable against a demand backdrop that was good but not great.  It can be difficult to extract value from the primary market when demand investor demand is voracious, as that type of environment can lead to less favorable pricing.  Next week is expected to be on the lighter side with syndicate desks looking for $25bln in primary volume.

Flows

According to LSEG Lipper, for the week ended May 14, investment-grade bond funds reported an inflow of +$1.86bln. This broke a 7-week streak of trade-turmoil outflows.  Total year-to-date flows into investment grade were +$6.649bln.

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.