Category: High Yield Weekly

(Bloomberg)  High Yield Market Highlights

• US junk bonds are headed for a first weekly gain in three, propelled by CCCs, the riskiest part of the high-yield market, after strong economic data underlined the resilience of the economy.
• A string of recent reports showed robust retail sales, expanding services activity and a strong jobs market, easing concerns of a recession that would lead to a strong of corporate defaults.
• CCCs are poised to record gains for the 16th consecutive week, the longest streak since March 2017. They rallied for five straight sessions this week, bucking the broader trend
• CCC spreads dropped to 591 basis points, the lowest since February 2022. They tightened 21 basis points week-to-date and are on track for a seventh weekly decline
• CCC yields plunged to 10.17%, the lowest since April 2022. They are down 18 basis points so far this week
• BBs are also set to close the week with modest gains, the first in three weeks, though they posted small losses on Thursday after three-day rally
• Single Bs are also headed for a first gain in three weeks
• Credit markets traded well this week amid favorable supply-demand technicals and supportive macro data, Brad Rogoff and Dominique Toublan of Barclays wrote in a note Friday
• The broad and steady rally amid a resilient economy and easing interest-rate policy spurred strong risk appetite, driving capital-market activity and moving October volume to almost $14b

This information is intended solely to report on investment strategies identified by Cincinnati Asset Management. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. Fixed income securities may be sensitive to prevailing interest rates. When rates rise the value generally declines. Past performance is not a guarantee of future results.

(Bloomberg)  High Yield Market Highlights

• US junk bonds kick off the fourth quarter on a somber note and are on track to end the eight-week gaining streak to post their biggest weekly loss in four months. The US junk bond rally faded as the market posted losses for the second consecutive session on Thursday.
• The broad rally petered out amid growing tensions in the Middle East and because data showed US services activity expanded at the fastest pace since February 2023. That damped hopes for a big rate cut in November.
• The losses this week spanned across ratings in the US high-yield market. BBs are also headed for their first weekly loss in nine and the biggest since early May
• US junk bond yields climbed to a two-week high of 7.06% after steadily rising for four straight sessions this week. This will be the first increase in nine weeks
• BB yields also rose seven basis points in four sessions to 5.89%, a more than two week high
• CCCs also recorded losses for two sessions in a row and are poised to close the week unchanged. Yields, though, have dropped further to a new 29-month low of 10.31%. Spreads closed at a new 30-month low of 629 basis points
• While the broad rally took a pause, still-attractive yields and tight spreads against the backdrop of resilient economy and easing monetary policy pulled borrowers into the US junk bond market
• After a brief respite from the supply deluge in September, five borrowers sold near $5b in the primary market this week
• Appetite for credit remained strong despite tight valuations, lower yields and elevated supply, Barclays strategists Brad Rogoff and Dominique Toublan wrote on Friday

This information is intended solely to report on investment strategies identified by Cincinnati Asset Management. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. Fixed income securities may be sensitive to prevailing interest rates. When rates rise the value generally declines. Past performance is not a guarantee of future results.

(Bloomberg)  High Yield Market Highlights

• US junk bonds rebounded cautiously after a four-day losing streak as spreads dropped just below 300 basis points and yields held steady at 7.03%.
• Junk bond yields, prices and returns came under pressure after a barrage of new issuance took the week’s volume to $9b and September supply to more than $34b. The month’s supply is up 44% year-over-year
• 17 borrowers, the most since May, jumped into the market to sell $9b this week
• The primary market was spurred by a half percentage-point cut in interest rates by the Federal Reserve.
• Investors, still hungry for new paper, continued to flock to new issues
• Barclays strategists Bradley Rogoff and Dominique Toublan expect to see attractive opportunities across the investment grade and high yield market despite tighter valuations after the beginning of the rate- cutting cycle in the US and Europe
• The market rebounded on Thursday across the rating spectrum, ending the four-day decline
• Barclays strategists Rogoff, Andrew Johnson and Corry Short expect CCCs to outperform through the year-end. Historically, when CCCs outperform through the third quarter, they tend to continue that trend through the year-end, they wrote on Friday

(Bloomberg)  Fed’s Favored Inflation Gauge, Consumer Spending Barely Rise

• The Federal Reserve’s preferred measure of underlying US inflation and household spending rose modestly in August, underscoring a cooling economy.
• The so-called core personal consumption expenditures price index, which excludes volatile food and energy items, increased 0.1% from July, according to Bureau of Economic Analysis data out Friday. On a three-month annualized basis, the measure rose 2.1%, in line with the central bank’s target.
• Spending also rose 0.1% after adjusting for inflation. Nominal personal income increased 0.2% and the saving rate eased to 4.8%.
• Treasury yields and the dollar fell on expectations the figures will keep the Fed on track for more rate cuts in the coming months while fueling ongoing debate over how big the reductions should be. The central bank opted for an outsize half-point cut this month to kick off its easing cycle, and investors are split over whether it will take a similar step or opt for a smaller move in November, according to futures.
• “The modest rise in consumer inflation in August on its own provides strong reason for the Fed to continue easing the still restrictive monetary policy stance,” Kathy Bostjancic, chief economist at Nationwide, said in a note. “The tepid 0.1% rise in real consumer spending in August underscores that consumers are becoming more frugal in their spending and that the momentum in spending is slowing.”
• Details of the August inflation numbers showed a broad cooling. Services prices excluding housing and energy rose 0.2% for a second month. Goods prices minus food and energy declined 0.2%, the most in three months.
• The spending data also points to an economy that’s gradually slowing this year. Overall services spending, which makes up the bulk of household consumption, rose 0.2% in August, marking the smallest three-month gain since October 2023. Goods spending was unchanged following a solid advance in July.
• Wages and salaries rose by the most since May. Still, growth in overall disposable income slowed, restrained by declines in proprietors’ income, interest income and dividend income.
• Separate data published Friday by the Census Bureau showed the advance goods trade deficit narrowed in August to $94.3 billion — the least since March — while growth in wholesale and retail inventories moderated. Results of a Bloomberg survey showed forecasters expect inflation to return to the Fed’s 2% target by early next year.
• Friday’s data follow annual revisions to gross domestic product data published Thursday by the BEA, which showed faster economic growth and more saving — fueled by higher incomes — than previously reported in 2022 and 2023.
• The Bureau of Labor Statistics will provide a monthly update on hiring and unemployment for September on Oct. 4.

This information is intended solely to report on investment strategies identified by Cincinnati Asset Management. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. Fixed income securities may be sensitive to prevailing interest rates. When rates rise the value generally declines. Past performance is not a guarantee of future results.

(Bloomberg)  High Yield Market Highlights

• US junk bonds are headed for their seventh weekly gain after amassing the biggest one-day returns in six weeks. The market is poised for the biggest weekly jump in four months, with returns of 0.86% so far this week.
• Yields plunged, falling below 7% for the first time since April 2022, after Fed Chair Jerome Powell made an aggressive start to easing by lowering the interest rate by a half percentage point aimed at bolstering the US labor market.
• The broad gains spanned across the US high yield market on expectations that the Federal Reserve will be able to engineer a soft landing. After the 50 basis point cut this week, Bank of America economists expect another 75 basis points cuts in the fourth quarter.
• Also, Chair Powell instilled confidence in markets claiming that the aggressive 50 basis point cut was just “recalibration” and was not a sign of fundamental deterioration, Brad Rogoff and Dominique Toublan wrote on Friday.
• CCCs, the riskiest tier of the US junk bond market, is on track for a 12th week of gains, the longest rallying streak since January 2021. The week-to-date returns are 1.84%, the most in a week in 2024, after notching up gains for 12 days in a row.
• CCC yields tumbled 16 basis points on Friday to 10.51%, the lowest since May 2022, and is on course for a third week of declines after dropping 43 basis points this week.
• CCC spreads tightened for the ninth consecutive session to 664, the longest tightening stretch in 20 months.
• BB yields dropped to a new 27-month low and closed at 5.79%. Spreads closed at 183.
• Primary activity gained new momentum as the soft landing narrative gained market credence against the backdrop of falling inflation and easing interest-rates.
• The market has seen a flurry of new deals, bringing the September tally to $24b, up 34% already over last September and there one full week to go.

This information is intended solely to report on investment strategies identified by Cincinnati Asset Management. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. Fixed income securities may be sensitive to prevailing interest rates. When rates rise the value generally declines. Past performance is not a guarantee of future results.

(Bloomberg)  High Yield Market Highlights

• US junk bonds are headed for their sixth straight week of gains, and yields still hover around two-year lows on expectations that the Federal Reserve will begin easing interest-rate policy in its meeting next week. Expectations swing between a 25 and a 50 basis point cut.
• The gains spanned across ratings in the US high yield market, led by CCCs, the riskiest segment of the market. CCCs are on track for their 11th week of gains, the longest winning streak in more than three years, after rallying for seven sessions in a row. CCC yields are at 11.07%, the lowest since May 2022.
• Expectations of easing monetary policy, combined with hopes of a soft landing, pulled US borrowers into the market. The primary market was crowded with 15 borrowers selling more than $11b this week, the busiest in four months. The busiest week this year is the week ended May 10 when the market priced $13b in new bonds
• 26 issuers sold bonds in the first two weeks of the month driving the September tally to $19b. The month already accounts for about 80% of last September’s volume
• The broad gains across risk assets pushed junk bond gains across ratings
• BB yields held steady at 6%. BBs are also set for their sixth weekly gains after rallying in two of the last four sessions
• With demand for all-in yield remaining robust and fundamentals appearing solid, any widening in yields will be met with buyers, keeping spreads range-bound, Brad Rogoff and Dominique Toublan wrote on Friday
• Fundamentals still look fine, with leverage in better shape than pre-COVID, Rogoff and others wrote

(Bloomberg)  Core US Inflation Picks Up, Damping Odds of Outsize Fed Cut

• Underlying US inflation unexpectedly picked up in August on higher prices for housing and travel, undercutting the chances of an outsize Federal Reserve interest-rate cut next week.
• The so-called core consumer price index — which excludes food and energy costs — increased 0.3% from July, the most in four months, and 3.2% from a year ago, Bureau of Labor Statistics figures showed Wednesday.
• Economists see the core gauge as a better indicator of underlying inflation than the overall CPI. That measure climbed 0.2% from the prior month and 2.5% from a year ago in August, marking the fifth straight month the annual measure has eased and dragged down by cheaper gasoline prices.
• The BLS said shelter was “the main factor” in the overall advance.
• While Wednesday’s reading won’t deter the Fed from cutting interest rates next week, it reduces the chance of an outsize reduction. Even so, policymakers have made it clear that they’re highly focused on softness in the labor market, which is more likely to drive policy discussions and decisions in the months ahead. They’ll also have more data to consider leading up to their November and December meetings.
• In addition to shelter, the advance was boosted by airfares, apparel as well as daycare and preschool. Car insurance costs continued to rise, as did hotel stays.
• Shelter prices, the largest category within services, climbed 0.5%, the most since the start of the year. That marked the second month of acceleration and defied widespread expectations for a downshift. Owners’ equivalent rent — a subset of shelter and the biggest individual component of the CPI — rose at a similar pace.
• Excluding housing and energy, service prices advanced 0.3%, the most since April, according to Bloomberg calculations. While central bankers have stressed the importance of looking at such a metric when assessing the nation’s inflation trajectory, they compute it based on a separate index.
• That measure — known as the personal consumption expenditures price index — doesn’t put as much weight on shelter as the CPI does, partly why it’s trending closer to the Fed’s 2% target.
• The PCE measure, which will be released later this month, draws from the CPI as well as certain categories within the producer price index.
• Central bankers are increasingly paying attention to the labor side of their dual mandate amid emerging cracks in the job market. Hiring over the past three months is at the lowest since mid-2020, while job openings declined and layoffs rose in July. Anecdotally, employers have also indicated they’re becoming more selective in hiring, with some cutting hours and leaving vacancies unfilled.

This information is intended solely to report on investment strategies identified by Cincinnati Asset Management. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. Fixed income securities may be sensitive to prevailing interest rates. When rates rise the value generally declines. Past performance is not a guarantee of future results.

(Bloomberg)  High Yield Market Highlights

• US junk bonds gained for the second straight session after data showed US companies added the fewest jobs since the start of 2021, reinforcing the broad trend that the labor market is cooling substantially. Yields tumbled seven basis points to a more than two-year low.
• While the labor market is clearly slowing down, the US services sector expanded at a moderate pace, giving credence to the market consensus that the economy is still not headed toward a recession. The gains in the US high-yield market spanned across ratings, driving a crowded primary market.
• Five US borrowers combined to sell a little more than $4b on Thursday, the busiest session in four weeks. US companies took advantage of the current window of opportunity ahead of Friday’s jobs data and the Federal Reserve decision later this month as 11 borrowers priced more than $7.5b in just three sessions so far this week
• Most bonds sold this week were rated BB or in high single Bs. Four of the five priced at the tight end of talk.
• The junk-market rebound began Wednesday after US job openings hit the lowest level since January 2021, boosting market participants’ bets on rate cuts
• CCCs, the riskiest segment of the US corporate debt market, racked up the biggest gains in four weeks for the second day in a row and yields plummeted 25 basis points to a low of 11.25%, the lowest since May 6, 2022
• BB yields dropped below 6% again to close at 5.99%, still near the two-year low of 5.97%
• The slowing demand for workers, as reflected in US job-openings data and private payrolls, combined with shrinking US manufacturing activity, spurred bets on faster and bigger rate cuts

This information is intended solely to report on investment strategies identified by Cincinnati Asset Management. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. Fixed income securities may be sensitive to prevailing interest rates. When rates rise the value generally declines. Past performance is not a guarantee of future results.

(Bloomberg)  High Yield Market Highlights

• The High Yield Index didn’t have much going on over the past week
• There were no new issues to speak of during the late summer lull. Month-to-date issuance remains at $18 billion, and Year-to-date issuance stands at $197 billion.
• The Index spread tightened 4 basis points to 308 and the yield moved just 1 basis point lower to settle at 7.30.

(Bloomberg)  Powell Says ‘Time Has Come’ for Fed to Cut Interest Rates

• Chair Jerome Powell said the time has come for the Federal Reserve to cut its key policy rate, affirming expectations that officials will begin lowering borrowing costs next month and making clear his intention to prevent further cooling in the labor market.
• “The time has come for policy to adjust,” Powell said last Friday (8/23/24) in the text of a speech at the Kansas City’s Fed’s annual conference in Jackson Hole, Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”
• The Fed chief acknowledged recent progress on inflation, which has resumed moderating in recent months after stalling earlier in the year: “My confidence has grown that inflation is on a sustainable path back to 2%,” he said, referring to the central bank’s inflation target.
• The Fed has held its benchmark rate in a range of 5.25%-5.5% — its highest level in more than two decades — for the last year in support of that goal, propping up borrowing costs across the economy.
• Yet just as inflation has neared its target, cracks have appeared on the employment front, prompting several Fed officials to worry that high rates now pose a threat to the economy’s continued strength. Warning signals included a disappointing July jobs report that rattled financial markets.
• “We do not seek or welcome further cooling in labor market conditions.” Powell said, adding that the slowdown in the labor market was “unmistakable.”
• After being late to raise rates in response to an inflation surge during the Covid-19 pandemic, Powell’s remarks underscore how Fed officials are hoping to avoid another policy error.
• “Our objective has been to restore price stability while maintaining a strong labor market, avoiding the sharp increases in unemployment that characterized earlier disinflationary episodes when inflation expectations were less well anchored,” Powell said. “While the task is not complete, we have made a good deal of progress toward that outcome.”
• At their last gathering in July, the “vast majority” of Fed officials felt it would likely be appropriate to cut rates in September if economic data continued to come in as expected.
• While inflation remains above the Fed’s goal, it has retreated markedly from its recent peak of 7.1% in 2022. The central bank’s preferred inflation gauge, the personal consumption expenditures price index, rose 2.5% in June from a year earlier. A separate measure of underlying consumer inflation cooled in July for a fourth straight month. Meanwhile, the unemployment rate ticked up last month, also for a fourth straight time, reaching 4.3%, and employers pulled back on the pace of hiring.
• Powell said policymakers “will do everything we can to support a strong labor market as we make further progress toward price stability.”
• At their gathering next month, Fed officials will release fresh set of economic projections and indicate where they anticipate their policy rate will be at the end of each year through 2026.

This information is intended solely to report on investment strategies identified by Cincinnati Asset Management. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. Fixed income securities may be sensitive to prevailing interest rates. When rates rise the value generally declines. Past performance is not a guarantee of future results.

(Bloomberg)  High Yield Market Highlights

• US junk bonds are headed for their second straight weekly gain — and the biggest in five weeks — as yields plunged to a fresh year-to-date low of 7.53% after US inflation eased for the fourth month on a year-over-year basis. Soft economic data reinforced market bets that the Federal Reserve will begin cutting rates in September.
• The broad rally in the US junk-bond market extended across ratings. BB yields hit a new two-year low of 6.20% and spreads dropped below 200 basis points, driving the second straight week of gains and the most since the week ended July 12. BBs have rallied for eight consecutive sessions.
• After oscillating between concerns about inflation and growth over the past 12 months, growth worries seem to be driving markets now, fueling expectations of a 50bps cut in each of the next five Fed meetings, Goldman Sachs economists Kamakshya Trivedi and Dominic Wilson wrote on Thursday
• However, Trivedi and Wilson write, growth fears have moved too far, and some sections of the market look overpriced. They expect continued expansion and decelerating inflation, rather than an imminent recession
• While acknowledging risks from data and geopolitics, there is still value in positioning for the “right tail” to be able to respond quickly to policy easing when it occurs, they wrote
• Bloomberg’s US chief economist Anna Wong expects Fed Chair Powell to say at this year’s Jackson Hole gathering that monetary policy has worked as intended and the current level of rates is restrictive while also signaling that a rate cut is coming
• The recent rally after the Aug. 5 rout saw yields sink to a 2024 low, pulling borrowers into the market
• 11 borrowers sold $8.6b this week, taking month-to-date tally to $17b already

(Bloomberg)  Core US Inflation Eases a Fourth Month, Sealing Fed Rate Cut

• Underlying US inflation eased for a fourth month on an annual basis in July, keeping the Federal Reserve on track to lower interest rates next month.
• The so-called core consumer price index — which excludes food and energy costs — increased 3.2% in July from a year ago, still the slowest pace since early 2021.
• Economists see the core gauge as a better indicator of underlying inflation than the overall CPI. That measure also climbed 2.9% from a year ago. BLS said nearly 90% of the monthly advance was due to shelter, which accelerated from June.
• Inflation is still broadly on a downward trend as the economy slowly shifts into a lower gear. Combined with a softening job market, the Fed is widely expected to start lowering interest rates next month, while the size of the cut will likely be determined by more incoming data.
• “Investors and policymakers alike will find this report mostly good for markets and the economy,” said Jeffrey Roach,chief economist at LPL Financial. “As inflation decelerates, the Fed can legitimately cut rates yet keep policy restrictive overall.”
• Before their September meeting, officials will get more inflation readings plus another jobs report — which will be heavily scrutinized after the disappointing July figures helped spark a global market selloff and fanned recession fears.
• Fed Chair Jerome Powell and his colleagues have recently said they’re focusing more on the labor side of their dual mandate, which they’re likely to stress at their annual symposium in Jackson Hole, Wyoming 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.

(Bloomberg)  High Yield Market Highlights

• US junk bonds staged a solid comeback from last week’s losses and are on track to post modest gains as yields plunged 22 basis points in three sessions – from 7.90% to 7.68% – and spreads tightened 42bps to 339.
• The rally extended across the ratings spectrum after labor market data eased worries about an imminent recession. The riskiest tier of the junk bond market, CCCs, are headed toward their sixth straight week of gains, the longest rising streak in 2024.
• CCC yields fell 39 basis in three sessions this week – from 12.92% on Monday to 12.53% at close on Thursday. Spreads dropped 57 basis points in the same period – from 890 to 833
• After several months of calm, spreads have been sharply wider over the past week, albeit well off the worst levels, amid slowdown concerns and positioning unwinds. “We see few signs of true credit stress,” but a further decline in yields could pressure spreads further, Brad Rogoff and Dominique Toublan of Barclays wrote Friday
• A strong rebound, with yields dropping and spreads tightening pulled US borrowers into the market on Thursday
• Six borrowers sold more than $4 billion, driving the month-to-date tally to $7.3b

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.