Category: Investment Grade Weekly

Investment grade credit spread performance was mixed throughout the week with spreads set to finish the week slightly wider.  The Bloomberg US Corporate Bond Index closed at 132 on Thursday December 2 after having closed the week prior at 130.  Treasuries continued to exhibit the same type of volatility that we have become accustomed to in recent weeks.  The 10yr Treasury closed last week at 3.68% and it is trading at 3.55% as we go to print.  The 10yr closed above 4% as recently as November 9, so this has been a significant move lower in yield over the course of only 15 trading days.  Through this Thursday the Corporate Index had a YTD total return of -14.3% while the YTD S&P500 Index return was -13.2% and the Nasdaq Composite Index return was -26.0%.

There was plenty of economic data to parse this week.  Things really started to ramp on Wednesday with a GDP print that morning that gave market participants some hope that inflation may be turning the corner and headed lower as the numbers showed slowing personal consumption and a core PCE figure that declined in 3Q relative to 2Q.  Chairman Powell gave a speech later that day at the Brookings Institution that indicated that the Fed was set to moderate the pace of rate increases at its meeting on December 14.  This sent stocks higher and Treasury yields lower.  We were surprised by this price action as a 50 basis point hike in December should not have been seen by the market as new information.  We believe that markets for risk assets are simply too eager for the Fed pivot when in fact chair Powell has been crystal clear that the Fed will not look to ease financial conditions through rate cuts until it is obvious that inflation is headed lower, closer to its longer term target.  The Friday nonfarm payroll report was stronger than expected and showed that the labor market continued to be strong in November.  Job gains and robust wage growth are not what the Fed was hoping to see and that data gives further credence to our belief that the Fed will not be in a hurry to cut its policy rate.  An elevated policy rate for a longer time period is not problematic for bond investors as it affords an opportunity to generate more income for new money and incremental purchases but it does make this exercise more difficult when the market is so quick to see any bad news as good news, sending Treasury yields lower in the process.

The primary market had a busy week as issuers priced more than $22bln in new debt.  Amazon led the way as it printed $8.25bln across 4 tranches.  The 2022 issuance tally stands at $1,176bln which trails 2021’s pace by ~13%.

Investment grade credit reported an outflow for the week.  Per data compiled by Wells Fargo, outflows for the week of November 24–30 were -$3.9bln which brings the year-to-date total to -$161.1bln.

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. 

Investment grade credit spreads were unchanged on the week until the CPI print sent spreads tighter on Thursday morning.  If this “risk-on” trade has legs, then spreads will finish the week in solidly positive territory.  The credit market is closed this Friday in observance of Veteran’s Day but equities will remain open.  The Bloomberg US Corporate Bond Index closed at 152 on Wednesday November 9 after having closed the week prior at 152.  Treasury yields are sharply lower on the week with the bulk of that move occurring after CPI at 8:30am this morning.  The 10yr Treasury closed last Friday evening at 4.16% and it is trading at 3.92% as we go to print.  Through Wednesday the Corporate Index had a YTD total return of -19.5% while the YTD S&P500 Index return was -20.3% and the Nasdaq Composite Index return was -33.4%.

It was a lighter week for economic data relative to the last few weeks due in part to the fact that there were only 4 trading days.  The big news of the week was CPI on Thursday, which was weak across the board.  Recall that the last couple of CPI prints came in hotter than expectations.  This is only one data point, so it cannot be called a trend, but it is a welcome relief to bond investors to see this number move in a favorable direction for a change.  The next CPI release is on December 13 and the next FOMC decision is on December 14.  There is also an employment report on December 2 as well as other economic data that will help guide the Fed.  It will be interesting to see if the data allows the Fed to take its foot off the gas and back off from 75bps to 50bps at its December meeting.

The primary market was extremely active this week as 28 companies issued over $45bln of new debt across just three trading days.  It is worth noting that the high yield primary market has thawed as well and it posted its busiest week since June.  There are no new investment grade deals pending as we go to print on Thursday morning.  The 2022 issuance tally stands at $1,125bln in volume which trails 2021’s pace by ~12%.

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. 

Investment grade credit spreads look as though they will finish the week slightly tighter.  The Bloomberg US Corporate Bond Index closed at 155 on Thursday November 3 after having closed the week prior at 158.  Treasury yields moved higher during the week.  The 10yr Treasury closed last Friday evening at 4.01% and it is trading at 4.17% as we go to print this Friday afternoon.  Through Thursday the Corporate Index had a YTD total return of -19.7% while the YTD S&P500 Index return was -20.9% and the Nasdaq Composite Index return was -33.5%.

It was an active week for central bankers and there was plenty of economic data to parse.  The FOMC raised the policy rate by 75bps for the fourth consecutive meeting, moving the benchmark to a target range of 3.75% to 4%.  This move was largely expected by markets but some investors may not have been sufficiently prepared for Powell’s comments which were perceived as hawkish in nature.  In our view this should not have come as a surprise as Fed officials have been consistently hawkish in recent weeks.  Powell did indicate that the committee may look to slow the pace of Fed Funds rate increases but that they are committed to seeing this through to the end in order to tame inflation.  We think that this level of commitment increases the probability that the economy will start to slow significantly in the months ahead.  Not to be outdone by the FOMC, the Bank of England was on the tape Thursday with a 75bps hike but its rhetoric was much more dovish than the U.S. central bank.  The BOE warned investors that market expectations for its terminal rate have overshot, and that while additional rate hikes may be required, the bank will be careful to limit the associated impact on economic growth.  The BOE expects that GDP for the UK will contract for eight consecutive quarters until mid-2024.  The final major piece of data came on Friday morning when the October jobs report showed that the U.S. labor market was still quite healthy.  Although the unemployment rate did tick higher from 3.5% to 3.7%, it is clear that the labor market was still too tight relative to FOMC expectations.  Futures contracts are pricing in a 50-basis point hike at the Fed’s December 14 meeting, but if the data over the next month does not paint a picture of slowing inflation then 75bps could be on the table once again.

Primary market activity in corporate credit was muted during the week.  Borrowers brought just over $12bln in new debt to market relative to expectations that were looking for $15bln on the low-end.  2022 has seen over $1,080bln in new issue volume which trails 2021’s pace by ~12%.

Investment grade funds reported a modest outflow for the week.  Per data compiled by Wells Fargo, inflows for the week of October 27–November 2 were -$0.4bln which brings the year-to-date total to -$147bln.

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. 

Investment grade credit spreads will likely finish the week tighter.  The Bloomberg US Corporate Bond Index closed at 161 on Thursday October 27 after having closed the week prior at 164.  Treasury yields drifted lower throughout the week.  The 10yr Treasury closed last Friday evening at 4.22% and it is trading at 3.99% as we go to print this morning.  Through Thursday the Corporate Index had a negative YTD total return of -19.1% while the YTD S&P500 Index return was -19.1% and the Nasdaq Composite Index return was -30.4%.

It was an extremely active week for economic data and rate decisions by global central banks.  We cannot cover it all in this brief note but we will do our best to hit the highlights.  Early in the week, data releases showed housing prices that slowed more than expected and a consumer confidence number that was underwhelming relative to expectations.  US 30-year mortgage rates topped 7% for the first time since 2001 and mortgage applications continued to slow.  On the bright side, new home sales were a slight beat relative to expectations and the third quarter US GDP report showed that growth rebounded into positive territory after two consecutive quarters of contraction.  On the central bank front, The Bank of Canada surprised investors with a half-percentage point increase in its policy rate from 3.25% to 3.75%.  Investors were expecting the BOC to increase by 75 basis points.  The BOC also made comments that indicate that, while it is not done with rate increases, it is getting closer to the end of its hiking cycle.  Lastly, the European Central Bank raised its policy rate by 75 basis points to 1.5%, its highest level in more than a decade.  ECB President Lagarde said further rate hikes are on the horizon but her tone was cautious given the deteriorating outlook for the Eurozone economy as the region barrels toward a recession.  Overall, the news flow continues to paint a mixed picture and there were pieces of data that both hawks and doves could cling to.

It was an active week in the primary market as 13 borrowers priced more than $34bln in new debt through Thursday.  There is one deal pending on Friday morning that will push that total further as Honeywell is looking to tap the market for up to $2bln spread across several tranches.  Next week will likely bring more muted issuance volumes with the FOMC meeting on Wednesday –market prognosticators are calling for $15-$20bln of issuance weighted toward the front end of the week.  2022 has seen over $1,066bln in new issue volume which trails 2021’s pace by about 13%.

Investment grade funds reported their first inflow in 9 weeks.  Per data compiled by Wells Fargo, inflows for the week of October 20–26 were +$1.6bln which brings the year-to-date total to -$146.6bln.

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. 

Investment grade credit spreads were unchanged for most of the week but the market has been drifting wider Friday morning so the index may finish 1-2 basis points wider by the time the sun has set on the week.  IG credit led the way this week having substantially outperformed other risk assets on a spread basis.   The Bloomberg US Corporate Bond Index closed at 141 on Thursday September 15 after having closed the week prior at 141. The 10yr Treasury closed last week at 3.31% and is trading at 3.43% as we go to print on Friday morning.  Through Thursday the Corporate Index had a negative YTD total return of -15.58% while the YTD S&P500 Index return was -17.2% and the Nasdaq Composite Index return was -26.98%.

The big economic news of the week was the CPI print on Tuesday morning which showed that prices increased slightly in August versus market expectations for a slight decrease.  This was a disappointing number for risk assets and stocks immediately reacted by trading much lower and Treasuries of all maturities sold off sharply.  This report showed that the Fed still has much work to do before inflation cools to a level nearer its 2% target. CPI data has assured a 75bp hike at the FOMC meeting next week and has even brought forth the possibility of a surprise 100bp hike.  Thursday morning brought with it the second big economic data point of the week with mixed retail sales numbers that showed a stronger than expected increase for August but a revision downward for July.  The broad picture painted by the last couple retails sales reports has showed that consumer spending has been slowing for durable goods but has remained relatively strong for services.  The Fed will be on the tape next week with its rate decision on Wednesday.

This was a volatile week with equities trading lower and Treasuries selling off, both of which served to impugn supply estimates with $18.7bln of new debt priced relative to estimates of $35-40bln.  Next week the street is looking for about $15bln of issuance with Wednesday off limits for issuers due to the FOMC.  Once again we find ourselves in more of a day-to-day type of environment for the new issue calendar.

Fund flows held up remarkably well this week considering the soft sentiment for risk assets.  Per data compiled by Wells Fargo, outflows for the week of September 8–14 were -$0.4bln which brings the year-to-date total to -$111.6bln.  This was the third consecutive week of modest outflows and the pace of outflows has decelerated each of the past three weeks.

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. 

Investment grade credit spreads were pushed wider to start the week after a deluge of new issue supply on Tuesday.  By mid-Wednesday morning spreads were trending tighter after investors had a chance to digest issuance and now this Friday morning it is clear that the market is set to finish the week better than last which sets up well for another bout of new issue on Monday. The Bloomberg US Corporate Bond Index closed at 143 on Thursday September 8 after having closed the week prior at 145. The 10yr Treasury closed last week at 3.19% and is trading at 3.27% as we go to print on Friday morning.  Through Thursday the Corporate Index had a negative YTD total return of -15.02% while the YTD S&P500 Index return was -15.12% and the Nasdaq Composite Index return was -23.74%.

The FOMC does not meet until September 21 but next Tuesday will see the release of the latest CPI figure which is a big data point that will guide the Fed in its choice of a 50bp or 75bp hike 12 days from now.  Other central banks joined the rate-hike party this week.  On Wednesday, the Bank of Canada increased its target for the overnight rate by 75bps to 3.25%, a 14-year high for that country.  The European Central Bank followed suit on Thursday by increasing its deposit rate from 0% to 0.75%.  The ECB also slashed its forecast of economic growth in 2023 to a mere 0.9%.  Critics believe this growth target is overly optimistic and that the European economy will find itself in recession sooner rather than later and we at CAM agree with that view.

The holiday shortened week saw 31 companies sell over $51bln of new debt.  The street is looking for $35-40bln of issuance next week and with CPI at 8:30am on Tuesday we would expect a tidal wave of issuance on Monday if the market tone is receptive as companies look to get ahead of that economic print.  Issuance right now is very much day-to-day depending on the market’s appetite for risk on any given day as well as being highly dependent on the increasingly volatile Treasury market.

Per data compiled by Wells Fargo, outflows moderated this week of September 1–7 to -$0.9bln which brings the year-to-date total to -$111.2bln.  This was the second consecutive week of modest outflows on the back of a 5 week streak of inflows for the asset class.

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. 

Investment grade credit spreads drifted wider in the first half of the week and then traded tighter amid low volume into Friday morning.  After Fed Chair Jerome Powell spoke on Friday the street tried to take spreads wider but trading volume has remained low with the market in its end-of-summer seasonal slow-down.  The Bloomberg US Corporate Bond Index closed at 134 on Thursday August 25 after having closed the week prior at 136. After the dust settles the index is likely to finish the week unchanged or close to it.  The 10yr Treasury closed last week at 2.97% and is trading at 3.05% as we go to print on Friday morning.  Through Thursday the Corporate Index had a negative YTD total return of -13.1% while the YTD S&P500 Index return was -11% and the Nasdaq Composite Index return was -18.78%.

Economic data this week was light relative to the last two weeks and much of the week was spent with investors anticipating Powell’s Friday morning speech.  The speech was less than 10 minutes in length, but that was all the market needed to understand that the Fed is committed to using restrictive policy to reduce inflation even if it causes some pain for households and businesses.  Chair Powell said 75bps is still on the table for the Fed’s September 21 FOMC rate decision.

There was no new issuance this week.  It wouldn’t have been surprising if there would have been a deal or two on Monday or Tuesday but Monday was a volatile day for stocks and risk assets in general so issuers decided to pack it in for the week, and probably for the summer.  We anticipate no issuance again next week before things start to pick up again after Labor Day.  September is expected to see a high volume of issuance.

Investment grade credit reported a fifth straight week of inflows.  Per data compiled by Wells Fargo, inflows for the week of August 18–24 were +$2.8bln which brings the year-to-date total to -$108.9bln.

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. 

Investment grade credit spreads were generally tighter to start the week and then drifted wider in the second half.  The Bloomberg US Corporate Bond Index closed at 134 on Thursday August 18 after having closed the week prior at 132.  The 10yr Treasury closed last week at 2.83% and is trading at 2.95% as we go to print on Friday morning.  Economic data painted differing pictures this week.  The Empire Manufacturing survey on Monday was absolutely dreadful and caused investors to ponder the impact of slowing growth in an economically important region.  Housing starts declined for the sixth consecutive month and mortgage applications came in lighter than estimates.  On the bright side, July retail sales showed some encouraging signs.  Fed speakers throughout the week did their best to remind investors that they will do whatever it takes to lower inflation to 2%.  This is not an opinion piece, but since you asked, it is our view that the market is much too complacent about the Fed and there seems to be this prevailing belief that the Fed will be ready and willing to immediately slash the Funds Rate in 2023 at the first hint of economic weakness.  We simply disagree with this view and believe that the Fed is willing to inflict pain on equities and riskier assets in its quest to quell inflation. Through Thursday the Corporate Index had a negative YTD total return of -12.23% while the YTD S&P500 Index return was -9.22% and the Nasdaq Composite Index return was -16.69%.

Primary issuance was in line with expectations this week as more than $22bln of new debt was brought to market.  As pointed out by Bloomberg, this was the fifth week in a row where actual volume met or exceeded concensus expectations, a good sign for the health of the primary market.  Issuance will likely slow significantly until after Labor day at which point we expect substantial issuance if investors remain receptive.  There has been $912bln of new issuance YTD which trails 2021’s pace by 5% according to data compiled by Bloomberg.

Investment grade credit reported a fourth straight week of inflows.  Per data compiled by Wells Fargo, inflows for the week of August 11–17 were +$3.9bln which brings the year-to-date total to -$111.7bln.

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. 

Investment grade credit performed strongly this week as spreads moved tighter throughout.  The Bloomberg US Corporate Bond Index closed at 135 on Thursday August 11 after having closed the week prior at 141.  The 10yr Treasury closed last week at 2.83% and is trading at 2.85% as we go to print on Friday afternoon.  On the economic front, the big news of the week was Wednesday’s CPI print which was the first data point that showed inflation might be slowing.  Both headline and core inflation came in below expectations and stocks rallied on the news but most market participants agree that the battle is far from over; but it is an encouraging sign nonetheless.  Through Thursday the Corporate Index had a negative YTD total return of -12.4% while the YTD S&P500 Index return was -10.89% and the Nasdaq Composite Index return was -17.31%.

Primary issuance continued to impress this week, although at a more subdued pace than the previous two weeks.  Just over $30bln of new debt was brought to market.  The primary market typically experiences a seasonal slowdown in the second half of August before things pick back up after Labor day.  There has been $890bln of new issuance YTD which trails 2021’s pace by 6% according to data compiled by Bloomberg.

Investment grade credit reported a second straight week of strong inflows.  Per data compiled by Wells Fargo, inflows for the week of August 4–10 were +$4.7bln which brings the year-to-date total to -$115.3bln.

Investment grade credit performance was mixed again this week.  It looked like spreads would finish the week better bid but then the monthly payroll report hit on Friday morning.  Things are volatile as we go to print so it is merely a guess but we could finish the week somewhere in the neighborhood of unchanged to modestly wider amid a risk off tone on the back of payrolls.  The Bloomberg US Corporate Bond Index closed at 141 on Thursday August 4 after having closed the week prior at 144.  The 10yr Treasury has been all over the map this week.  The 10yr closed last week at 2.65%, closed Monday of this week at 2.57% and is now up at 2.84% mid-Friday morning.  Fed speakers spent much of this week reinforcing their hawkish views and commitment to tame inflation and then a strong jobs report fueled a 14 basis point sell-off in 10s this morning.  Front-end rates are getting hit even harder with the 2-year Treasury up nearly 18 basis points as we go to print.  The short and intermediate portions of the Treasury curve are now more inverted than they have been at any point in this cycle. Through Thursday the Corporate Index had a negative YTD total return of -11.35% while the YTD S&P500 Index return was -12.11% and the Nasdaq Composite Index return was -18.88%.

Primary issuance was big this week with $56bln in new debt brought to market which exceeded even the highest of expectations.  There was issuance from high quality household names such as Apple and Intel and Meta Platforms (fka Facebook) printed its inaugural bond deal of $10bln.  Street estimates are looking for $20-25bln in issuance next week.  There has been $859bln of new issuance YTD which trails 2021’s pace by 5% according to data compiled by Bloomberg.

Investment grade credit saw its highest weekly inflow in almost a year.  Per data compiled by Wells Fargo, inflows for the week of July 28–August 3 were +$6.5bln which brings the year-to-date total to -$119.9bln.