Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.9 billion and year to date flows stand at -$8.9 billion. New issuance for the week was $13.5 billion and year to date issuance is at $274.2 billion.
(Bloomberg) High Yield Market Highlights
- U.S. junk bonds remained relatively steady Thursday amid a retreat in the reflation trade that has dominated markets for the majority of this year. The broader high-yield index is poised to see a modest weekly loss of 0.03% — its first decline in four weeks — as investors also weigh the Federal Reserve’s signals that it’s ready to withdraw stimulus.
- The index posted a small loss of 0.07% for the second consecutive session while yields rose 5bps to close at 3.94%
- The primary market was quiet Thursday amid the market reordering, which has seen commodities dip for five-straight sessions and Brent crude slip from this week’s 2018 high
- Borrowers are expected to remain in wait-and-see mode and issuance is likely to be subdued ahead of the weekend.
- Equity futures are mixed this morning Oil, meanwhile, also extended its decline, with prices falling below $71 a barrel as fears of earlier than expected rate hike derailed bets on commodities
(Wall Street Journal) Fed Pencils In Earlier Interest-Rate Increase
- Federal Reserve officials signaled they expect to raise interest rates by late 2023, sooner than they anticipated in March, as the economy recovers rapidly from the effects of the pandemic and inflation heats up.
- Their median projection showed they anticipate lifting their benchmark rate to 0.6% from near zero by the end of 2023. In March they had expected to hold it steady through that year.
- Fed officials also discussed an eventual reduction, or tapering, of the central bank’s bond-buying program, Chairman Jerome Powell said at a press conference after the central bank’s two-day policy meeting. The timing of such a move remains uncertain, he added.
- Prompting the policy shift is a much stronger economic rebound and hotter inflation than the Fed anticipated just a few months ago.
- “Progress on vaccinations has reduced the spread of Covid-19 in the United States,” the Fed said in a statement following the meeting. “Amid this progress and strong policy support, indicators of economic activity and employment have strengthened.”
- In updated projections released Wednesday, 13 of 18 officials indicated they expect to lift short-term rates by the end of 2023, up from seven who expected that outcome in March. In March, most of them anticipated holding rates steady through 2023.
- The Fed has its benchmark federal-funds rate steady since March 2020, when the effects of the pandemic caused the sharpest economic contraction in generations. The central bank also has been purchasing at least $120 billion a month of Treasury and mortgage bonds since June 2020 to hold down longer-term borrowing costs, providing further support to the recovery.
- The Fed reiterated that it expects to continue bond purchases until “substantial further progress” has been made in the recovery, counting from December 2020.
- Fed officials want the economy to get closer to their goals of “maximum employment” and sustained 2% inflation before reducing the bond purchases. They have said they want to fully achieve those objectives before they raise interest rates.
- “Honestly the main message I would take away from the [forecasts] is that participants—many participants—are more comfortable that the economic conditions in the committee’s forward guidance could be met somewhat sooner than anticipated,” Mr. Powell said. “That would be a welcome development.”
- He said meeting the standard for reducing bond purchases remains “a ways away.” But he added that the economy is making progress toward the Fed’s goals and that policy makers will be assessing the appropriate time to begin scaling back the purchases at coming meetings.
- “You can think about this meeting that we had as the ‘talking about talking about tapering,’ if you like,” Mr. Powell said.