Insight – Cincinnati Asset Management

31 Oct 2025

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

CAM High Yield Weekly Insights

(Bloomberg) High Yield Market Highlights

US junk bonds tumbled, posting their steepest one-day loss in three weeks, as the risk premium climbed to 278 basis points after Chair Powell cautioned that a December rate cut is not a foregone conclusion. Yields rose 11 basis points to 6.76%, the biggest one-day jump in three weeks.
The losses spanned across ratings. CCC yields, the riskiest tier of the high yield market, climbed 14 basis points to 9.84%. Spreads rose 14 basis points to 607 — the biggest one-day widening in three weeks.
BB yields rose to 5.68% and spreads widened to 168
The primary market ground to a halt after pricing a modest $4b this week and driving the October tally to about $18b, the slowest month for supply since April

(Bloomberg) Logan Joins Schmid in Opposing Fed Rate Cut, Citing Inflation

Two Federal Reserve officials said they did not support the US central bank’s decision to cut interest rates this week, citing inflation that remains too high.
Dallas Fed President Lorie Logan said she “did not see a need to cut rates this week” in remarks Friday prepared for an event in Dallas. Her comments followed a statement earlier in the day from her Kansas City counterpart, Jeff Schmid, outlining the reasons for his dissent against Wednesday’s rate cut.
The remarks from Logan and Schmid were the first salvo in what is likely to be an intense debate over the next six weeks before the central bank’s next policy meeting in December, between officials who see a need for more easing to support the labor market and those who are more concerned about inflation.
“I’d find it difficult to cut rates again in December unless there is clear evidence that inflation will fall faster than expected or that the labor market will cool more rapidly,” Logan said.
Fed officials cut their benchmark rate this week by a quarter percentage point for a second month in a row after a sharp slowdown in hiring over the summer raised concerns about the labor market. Chair Jerome Powell, speaking to reporters Wednesday after the decision, said another cut in December was not a forgone conclusion, noting that some of his colleagues were concerned about inflation.
That led to a sharp adjustment in the bond market, where investors had been pricing in near certainty of another quarter-point cut in December.
While Logan doesn’t vote on monetary policy this year, she participates in Federal Open Market Committee discussions and will rotate onto the voting panel in 2026. Two Fed officials voted against the decision at this month’s meeting, with Schmid preferring to hold rates steady and Governor Stephen Miran dissenting for a second straight meeting in favor of a larger, half-point cut.
“By my assessment, the labor market is largely in balance, the economy shows continued momentum, and inflation remains too high,” Schmid said in his statement.

31 Oct 2025

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

CAM Investment Grade Weekly Insights

Credit spreads will finish wider this week. The OAS on the Corporate Index closed at 76 on Thursday October 30^th after closing the week prior at 75. Although this was a very modest move wider the market “feels” a bit heavier as we go to print on Friday. Investors are busy processing earnings releases as well as a large amount of new issue supply so we would expect the spread on the index to finish the week 1-2 basis points wider than 76. Spreads are still very much rangebound over the past few months as the OAS on the index has not traded wide of 80 since early August. Treasury yields moved slightly higher throughout this week. The 10yr Treasury closed last week at 4.00% and the benchmark rate closed at 4.10% on Thursday evening. Through Thursday, the Corporate Bond Index year-to-date total return was +7.54% while the yield to maturity for the index was 4.80%.

News & Economics

It was another week of light economic data as US government data remains impacted by the shutdown. There were still a few private party releases that occurred this week particularly as it pertains to the housing market. Mortgage applications rose +7.1% last week indicating that perhaps some buyers/refinancers are starting to come off the sidelines as mortgage rates are closing in on three-year lows. However, later that morning data showed that pending sales of existing US homes stalled in September after a strong showing in the month of August.

The highlight of the week was Wednesday’s FOMC release. The Fed cut by 25bps, in line with expectations. The committee was largely in agreement with just two of the twelve voting members having differing views. One voting member wanted no cut and one wanted a 50bp cut. In our view the biggest takeaway from this meeting was Chairman Powell’s press conference as he sought to push back against the idea that a December cut is a forgone conclusion. Interest rate futures responded in kind as they were pricing a 92.3% chance of a cut on Tuesday evening with that number having been whittled down to a 68.9% chance by Wednesday’s close.

Next week will be another quiet one for government sponsored releases absent a reopening but there will be some datapoints from private providers including MNI Chicago PMI, S&P Manufacturing PMI and ISM data.

Primary Market

It was shock and awe this week in the primary market as it was the busiest week of 2025 and the sixth highest volume week of all time. It also capped off the busiest October on record. $78.9bln of new debt priced this week relative to dealer estimates of just $20bln. Meta Platforms led the way with a $30bln jumbo deal on Thursday. Other larger issuers of note were HSBC, Lloyds and Santander. Dealers are looking for $55bln next week to start the month of November.

Flows

According to LSEG Lipper, for the week ended October 29, investment-grade bond funds reported a net inflow of +$1.8bln. Total year-to-date flows into investment grade were +$61.4bln.

24 Oct 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 modest weekly gains after yields fell by a mere two basis points in the last four sessions and risk premium by just five basis points. A resurgence of trade tensions with China and a lack of macro data to assess the state of the economy because of the government shutdown have weighed on sentiment.
The US junk bond rally also lost some momentum as jittery investors pulled $970m from high-yield mutual funds, excluding exchange-traded funds, for the week ended Wednesday, according to Lipper. This is the second straight week of cash outflows from US junk bond mutual funds, excluding ETFs. The two weeks combined resulted in an outflow of $1.73b.
While the rally lost steam, participants drew comfort from robust corporate earnings and the potential that the Federal Reserve will reduce interest rates at its meeting next week
After a sudden burst of issuance this summer and a supply boom that made it the busiest September on record, the primary market has slowed, with issuance almost grinding to a halt
Just three deals for $2.8b were priced so far this week, taking the month’s volume to about $14b, the lightest since April

(Bloomberg) US CPI Rises Less Than Expected, Keeping Fed on Track to Cut

Underlying US inflation rose in September at the slowest pace in three months, keeping the Federal Reserve on course to lower interest rates next week.
The core consumer price index, excluding the often volatile food and energy categories, increased 0.2% from August, according to Bureau of Labor Statistics data out Friday. That was restrained by the smallest increase in a key measure of housing costs since early 2021.
The September CPI report was initially scheduled to come out on Oct. 15 but was delayed because of the ongoing federal government shutdown. While most BLS operations have ceased since the Oct. 1 closure, the agency recalled staff to prepare this release so the Social Security Administration could tally its annual cost-of-living adjustment.
The lower-than-expected reading is a welcome surprise, especially for several Fed officials who are leery of cutting rates further. While the central bank was already widely expected to lower borrowing costs at its meeting next week, the report may help convince policymakers that they can do so again in December — especially in the absence of other official reports should the shutdown continue.
Goods prices, excluding food and energy commodities, rose at a slower pace, dragged down by cheaper prices for used cars. Categories that are more exposed to tariffs, including household furnishings and recreational goods, advanced. Apparel prices climbed at the fastest rate in a year.
Services prices excluding energy climbed 0.2%, in part reflecting a slower advance in airfares. Shelter prices were tame after rising by the most since the start of the year in the prior month. That included just a 0.1% increase in owners’ equivalent rent — which accounts for roughly a quarter of the overall CPI.
While the inflationary impact of tariffs has been much less than many economists feared, several forecasters and policymakers are still wary that the duties will continue to put upward pressure on prices — which was evident in some private-sector gauges of inflation in September. President Donald Trump’s latest tariffs, aimed at household goods like kitchen cabinets and upholstered furniture, took effect earlier this month, and retailers like RH have warned of price increases to come.
Companies across the country have largely reported higher input costs due to tariffs in recent weeks, but the hit to consumers has been uneven, the Fed said in its latest Beige Book survey of regional business contacts. Procter & Gamble Co. is now expecting a more muted impact from tariffs and commodity prices, while O’Reilly Automotive Inc. said they adjusted selling prices to account for the increase in tariff-related costs.

24 Oct 2025

Insight, Investment Grade Quarterly CAM Team 0 comment

Resumen y perspectivas del tercer trimestre

Resumen y perspectivas del tercer trimestre
Octubre de 2025

El tercer trimestre de 2025 fue sorprendentemente favorable en comparación con el que lo precedió. La volatilidad que acompañó los anuncios arancelarios de principios de abril parece un recuerdo lejano en este momento, aunque vale la pena señalar que el crédito con grado de inversión fue una de las clases de activos con mejor comportamiento durante el malestar del segundo trimestre. Durante el tercer período, el crédito IG volvió a tener un buen desempeño y registró su mejor trimestre del año hasta el momento, ya que los bonos se beneficiaron del doble golpe de los diferenciales más ajustados y los rendimientos de los bonos del Tesoro en descenso.

El diferencial ajustado por opciones (OAS) del índice Bloomberg US Corporate Bond (el Índice) se negoció dentro de un rango estrecho de 11 puntos básicos durante el tercer período, y nunca cerró más allá de 83 al comienzo del trimestre y nunca por debajo de 72, lo que estableció un nuevo mínimo de 27 años para la medida. El Índice alcanzó su nivel récord de 72 el 18 de septiembre, un día después del primer recorte de tasas de la Fed desde diciembre de 2024, y cerró en ese nivel dos veces más después. El Índice cerró el trimestre en un OAS de 74, lo que lo hace 9 puntos básicos más ajustado durante el tercer período.

Los rendimientos de los bonos del Tesoro bajaron durante el trimestre, y la mayor parte de ese movimiento se produjo en los vencimientos más cortos, que están más apalancados en la tasa de política de la Fed que los vencimientos intermedios. Los bonos del Tesoro a 2, 5 y 10 años terminaron el período 11, 6 y 8 puntos básicos más bajos, respectivamente.

Compre el rendimiento, no el diferencial de crédito

La ventaja de los mayores rendimientos siguió siendo beneficiosa para los inversores durante el trimestre. Aunque el rendimiento al vencimiento del Índice disminuyó del 5% al 4.82% durante el período, se mantuvo elevado en relación con el promedio de 10 años del 3.82% para dicha medida. Piénselo de esta manera: un inversor en el Índice que elige mantener los bonos hasta el vencimiento obtendrá una rentabilidad anual equivalente al rendimiento al vencimiento en el momento de la inversión si no hay movimiento en los diferenciales de crédito o en los bonos del Tesoro subyacentes, asumiendo que no hay deterioro por pérdidas crediticias.

Los rendimientos más altos proporcionan un mayor margen de seguridad en un entorno de diferenciales de crédito estrechos. Una medida que utilizan los administradores de carteras de bonos para proyectar protección a la baja se denomina cálculo de “punto de equilibrio”. Por ejemplo, el índice compuesto IG Portfolio de CAM a finales de agosto tenía un rendimiento al vencimiento del 4.76% y una duración modificada del 5.69. Su punto de equilibrio fue 83.6, lo que significaría que la cartera podría tolerar alrededor de 84 puntos básicos de ampliación del diferencial antes de generar un rendimiento total negativo en el transcurso de un período de un año. Volviendo a la era de tasas ultrabajas de 2020, los datos del índice compuesto CAM IG a fines de agosto de 2020 mostraron un rendimiento al vencimiento del 1.78% con una duración de 6.18 y un punto de equilibrio de solo 29 puntos básicos. Comparando eso con una cartera hipotética de “dinero nuevo” en el gráfico adyacente, se obtiene un cálculo de equilibrio de 69 puntos básicos para el programa IG de CAM. Este es un análisis simplista que no incluye el beneficio de roll-down, el movimiento de los bonos del Tesoro u otras variables, pero es ilustrativo al mostrar cómo los mayores rendimientos totales brindan un elemento de protección a la baja en medio de un entorno de diferenciales de crédito estrechos.

Salud crediticia de IG: muy buena y mejorando

No se puede negar que los diferenciales de crédito son estrechos, y con buena razón. Las métricas crediticias fundamentales corporativas de IG son, en general, sólidas. Hasta el final del segundo trimestre, para los emisores no financieros dentro del Índice, los márgenes del EBITDA alcanzaron un máximo histórico del 31.1% mientras que hubo una mejora incremental tanto en el apalancamiento neto (2.9x) como en la cobertura de intereses (11.6x).ⁱ

Las tasas de incumplimiento de los emisores con calificación IG han sido históricamente infinitesimalmente bajas, lo que puede generar primas de riesgo más bajas durante períodos de fortaleza del mercado. Según datos compilados por Standard & Poor’s, de los 3,556 impagos globales ocurridos entre 1981 y 2024, solo 91 correspondieron a empresas con calificación de grado de inversión. Aproximadamente la mitad de ellas fueron resultado de burbujas especulativas: 20 de ellas ocurrieron durante el estallido de las puntocom de 2001-2002 y 25 durante la crisis financiera mundial de 2008-2009.ⁱⁱ Un gestor activo de crédito IG debe esforzarse por evitar los incumplimientos por completo y esa es una de las razones por las que nos esforzamos por estructurar la cartera de CAM para minimizar la volatilidad y nos apresuramos a salir de las tenencias existentes si nuestro análisis apunta a un potencial deterioro.

Fuerte demanda de los inversores, emisores felices de complacer

La oferta de nuevos bonos con grado de inversión fue sustancial en 2024 y se ha mantenido así en 2025; septiembre marcó el quinto total mensual más grande en volumen registrado y el segundo mes más activo de la historia fuera de la borrachera de préstamos de la era COVID.ⁱⁱⁱ Esta oferta ha sido fácilmente absorbida por los inversores institucionales que tienen suficiente capital para invertir a partir de las entradas y que están ansiosos por lograr objetivos a efectos de equilibrar activos y pasivos. Existe una expectativa entre los participantes del mercado de que la oferta de IG podría desacelerarse en el cuarto trimestre del año, lo que tiene el potencial de reducir los diferenciales de crédito. Simplemente no hay suficientes bonos para todos.

La Estrategia de Grado de Inversión de CAM utiliza el mercado de nuevas emisiones de manera oportunista para las cuentas de los clientes. Si bien la demanda de los inversores ha sido sólida, la mayoría de los nuevos acuerdos han seguido ofreciendo concesiones para incentivar a los compradores a participar en la nueva oferta de deuda. Según un estudio elaborado por J.P. Morgan, en promedio, los bonos emitidos durante el mes de septiembre se ajustaron 4.3 puntos básicos desde el día de la emisión hasta fin de mes.^iv

La Reserva Federal flexibilizó sus políticas, ¿habrá más?

El FOMC se reunió dos veces durante el tercer trimestre, en julio y septiembre. Optó por mantener estable su tasa de política monetaria en la primera reunión y aplicó un recorte de 25 puntos básicos el 17 de septiembre. Al Banco Central le quedan dos reuniones en 2025: a fines de octubre y durante la segunda semana de diciembre. Al final del trimestre, los futuros de fondos federales cotizaban a un 96.7% de posibilidades de un recorte en la reunión de octubre y a un 77.6% de posibilidades de un recorte en diciembre.^v Esto fue coherente con la publicación del Resumen de Proyecciones Económicas (gráfico de puntos) de la Reserva Federal en su reunión de septiembre. El gráfico de puntos resultó levemente más moderado que la versión de junio, y la versión de septiembre indicó que la proyección mediana de los miembros del FOMC favorecía 50 puntos básicos de recortes adicionales este año y 25 puntos básicos adicionales en 2026. Es importante tener en cuenta que el SEP es una instantánea en el tiempo y los datos se publican trimestralmente. Entre los 19 participantes de la reunión del FOMC, seis no proyectaron recortes adicionales para fines de 2025 y nueve proyectaron 50 puntos básicos, mientras que hubo una respuesta atípica de 125 puntos básicos.^vi

Creemos que hay buenas razones para la disparidad en las proyecciones sobre la trayectoria de la tasa de política monetaria, dada la naturaleza altamente bifurcada del contexto económico actual. Hay algunos sectores de la economía que están pasando por dificultades. La construcción de viviendas nuevas es una de esas industrias que se ha visto asediada por tasas hipotecarias más altas, precios de insumos más elevados como resultado de los aranceles y la incapacidad de conseguir suficiente mano de obra calificada. Nada ocurre en el vacío y los desafíos en la construcción de nuevas viviendas tienen efectos ascendentes y descendentes en las empresas químicas, los minoristas de mejoras para el hogar e incluso los proveedores de banda ancha debido a la falta de formación de nuevos hogares. Mientras tanto, otros sectores de la economía, como el tecnológico, siguen al rojo vivo. La probabilidad de una recesión a corto plazo ha disminuido significativamente desde abril, pero el motor del crecimiento económico se está volviendo menos diversificado y, en consecuencia, más riesgoso. Los gastos de capital en inteligencia artificial han tenido un impacto enorme en el crecimiento del PIB de EE. UU. durante la primera mitad del año.^vii El gasto de consumo se ha mantenido bien, y posiblemente incluso ha superado las expectativas, pero el consumo depende cada vez más de los consumidores con mayores ingresos, y el 10% superior de los que más ganan representa el 50% de todo el gasto.^viii La última estimación de la medida GDPNow del Banco de la Reserva Federal de Atlanta fue de +3.8%, muy lejos de una recesión, pero la dependencia excesiva del gasto en IA y de los consumidores con mayores ingresos, junto con un mercado laboral que claramente se ha desacelerado en los últimos meses, nos mantiene cautelosos sobre la sostenibilidad del crecimiento económico.^ix

Mantener el rumbo

A medida que pasamos la página hacia el último trimestre del año, planeamos seguir siendo selectivos al posicionar las carteras de nuestros clientes. Favorecemos sectores e industrias que tengan métricas crediticias que no se vean fácilmente influenciadas por aranceles o sorpresas en la política comercial estadounidense. Hay suficientes oportunidades en empresas bien gestionadas y adecuadamente capitalizadas como para que haya pocos motivos para tentar a la suerte por unos pocos puntos básicos adicionales. Planeamos permanecer totalmente invertidos y oportunistas. Gracias por su continuo interés. Comuníquese con nosotros si tiene alguna pregunta sobre cómo podemos ayudarlo con su asignación de renta fija.

Esta información solo tiene el propósito de dar a conocer las estrategias de inversión identificadas por Cincinnati Asset Management. Las opiniones y estimaciones ofrecidas constituyen nuestro criterio y están sujetas a cambio sin previo aviso, al igual que las declaraciones sobre tendencias del mercado financiero, que se basan en las condiciones actuales del mercado. Este material no tiene como objetivo ser una oferta ni una solicitud para comprar, mantener ni vender instrumentos financieros. El rendimiento pasado no es garantía de resultados futuros. El rendimiento bruto de la tarifa de asesoramiento no refleja la deducción de las tarifas de asesoramiento de inversión. Nuestras tarifas de asesoramiento se comunican en el Formulario ADV Parte 2A. En general, las cuentas administradas mediante programas de firmas de corretaje incluyen tarifas adicionales. Los retornos se calculan mensualmente en dólares estadounidenses e incluyen la reinversión de dividendos e intereses. El Índice no está administrado y no considera las tarifas de la cuenta, los gastos y los costos de transacción. Los rendimientos de índices y los datos relacionados, como los rendimientos y los diferenciales, se presentan con fines comparativos y se basan en información generalmente disponible al público de fuentes que se consideran confiables. No se hace ninguna afirmación sobre su precisión o integridad.

La información suministrada en este informe no debe considerarse una recomendación para comprar o vender ningún valor en particular. Los distintos tipos de inversiones implican distintos grados de riesgo y no puede garantizarse que cualquier inversión específica sea adecuada o rentable para la cartera de un cliente. Las inversiones de renta fija tienen distintos grados de riesgo crediticio, riesgo de tasa de interés, riesgo de incumplimiento y riesgo de prepago y extensión. En general, los precios de los bonos suben cuando las tasas de interés bajan y viceversa. Este efecto suele ser más pronunciado en el caso de los valores a largo plazo. No hay garantía de que los valores que se tratan en este documento hayan permanecido o permanecerán en la cartera de una cuenta en el momento en que reciba este informe o que los valores vendidos no se hayan vuelto a comprar. Los valores analizados no representan la cartera completa de una cuenta y, en conjunto, pueden representar solo un pequeño porcentaje de las tenencias de cartera de una cuenta. No debe suponerse que las transacciones de valores o participaciones analizadas fueron rentables o demostrarán serlo, o que las decisiones de inversión que tomemos en el futuro serán rentables o igualarán el rendimiento de la inversión de los valores examinados en este documento. Si se lo solicita, Cincinnati Asset Management proporcionará una lista de todas las recomendaciones de valores realizadas durante el último año.

Divulgaciones adicionales sobre los riesgos materiales y los posibles beneficios de invertir en bonos corporativos están disponibles en nuestro sitio web: https://www.cambonds.com/disclosure-statements/

ⁱ Barclays, 12 de septiembre de 2025, “Métricas crediticias de grado de inversión de EE. UU. Q2 25: mejora adicional”
ⁱⁱ S&P Global, 27 de marzo de 2025, “Incumplimiento, transición y recuperación: Estudio anual global de incumplimientos y transiciones de calificación 2024”
ⁱⁱⁱ Bloomberg, 1 de octubre de 2025, “BofA sorprendido por la ola récord de bonos corporativos de septiembre”
^iv J.P. Morgan, 2 de octubre de 2025, “US Corporate Credit Issuance Review”
^v Bloomberg, 30 de septiembre de 2025, “World Interest Rate Probability (WIRP)”
^vi Comité Federal de Mercado Abierto, 17 de septiembre de 2025, “Resumen de Proyecciones Económicas”
^vii Fortune, 23 de septiembre de 2025, “El auge de la IA es insostenible a menos que el gasto en tecnología se ‘parabolice’, advierte Deutsche Bank: ‘Esto es altamente improbable’”
^viii Bloomberg, 16 de septiembre de 2025, “El 10% de los que más ganan impulsa una parte creciente del gasto del consumidor en EE. UU.”
^ix Banco de la Reserva Federal de Atlanta, 1 de octubre de 2025, “GDPNow”

17 Oct 2025

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

CAM High Yield Weekly Insights

(Bloomberg) High Yield Market Highlights

US junk bonds were broadly resilient as they shrugged off concerns about credit quality after Zions Bancorp disclosed a charge-off for a bad loan at a subsidiary tied to alleged fraud. Junk bond yields held steady and spreads moved in tandem with five-year US Treasury yields even as equities churned on worries about regional banks soon after the First Brands Group collapse.
While high yield spreads closed at 6.76%, just two basis points higher, leading to a modest loss of 0.3% on Thursday. The high yield market is set for weekly gains, with week-to-date returns at 0.56%, the most since the week ended June 27
CCC yields were still far below 10%, closing at 9.87%, and spreads closed at 627 basis points
BB yields barely moved and closed at 5.72%, while spreads closed at 185 basis points. BBs are also headed for a weekly gain, with week-to-date returns at 0.54%
The markets, while struggling to assess the impact of the US-China trade war and broader credit quality in the wake of the regional bank scare, shifted their attention to widely expected interest-rate cuts after Chair Powell signaled that the Federal Reserve is set to deliver a quarter-point reduction at its meeting later this month. Speculation that the Fed will lower interest-rates twice this year fueled optimism about corporate earnings.
The primary market is steady and investors are still hungry for new paper.

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

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