Category: Insight

(Bloomberg)  High Yield Market Highlights

• The broad November rally in risk assets propelled CCCs, the riskiest tier of the junk bond market, alongside equities, to post the biggest monthly returns since January of this year. CCC yields plunged 125 basis points in November, also the most in 10 months, to 13.50%, driving gains of 4.53%.
• The broad surge across risk assets was fueled by a market consensus that the Federal Reserve was finished with the most aggressive tightening cycle in decades and that it will begin to ease monetary policy by the middle of 2024. Junk bond spreads dropped to a 10-week low of 370 basis points, after falling 67 basis points in November, the biggest monthly decline in five months.
• The rally came as the 5- and 10-year Treasury yields dropped by about 60 basis points each during the month of November to close at 4.27% and 4.33%, respectively. Treasury yields plunged from near 5% on Oct. 19
• US junk bonds racked up gains of 4.53%, the largest in a month since July 2022, fueled by BBs. Yields fell 106 basis points to 8.43%, also the biggest monthly decline in 16 months
• BBs had the best performance in 16 months, with returns of 4.6% reversing the three-month losing streak as rates tumbled
• Yields crashed by 99 basis points to close near a four-month low of 7%, the biggest monthly decline in over a year
• Resilient growth, cooling inflation and a softening labor market gave a strong impetus to the November rally, luring investors and US borrowers from the sidelines
• November is the fourth busiest month for issuance as volume surged to $19.4 billion, more than double October’s total of $9.45 billion
• US junk bond funds were inundated with new cash as investors poured more than $11b in November
• Year-to-date supply stood at $163 billion, up by about 60% from 2022’s $102 billion
• Forecasts for junk bond supply in 2024 range from $200 billion to $230 billion, with the exception of BofA, which estimates gross supply to be around $165 billion, a 5% drop from its projection of $175 billion for 2023

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 weekly gains as yields dropped 18 basis points week-to-date to 8.75% as of Thursday, after 5-year and 10-year US Treasury yields sank below 4.5%, falling about 19 basis points each. Yields fell below 9% and spreads below 400 basis points since the Federal Reserve signaled, after its meeting on Nov. 1, that it was likely finished with the most aggressive rate-hike campaign in decades.
• Economic data reports this month have shown a softening labor market with a rise in jobless claims, combined with cooling inflation and an unexpected decline in prices paid to US producers, which have all reinforced market consensus that interest rates were sufficiently restrictive.
• Resilient growth combined with falling yields lured more investors into the asset class for the second consecutive week as retail funds were inundated with new cash. US high-yields funds reported a cash intake of $4.55 billion for week ended Nov. 15, after an inflow of $6.26 billion in the previous week, the third biggest on record.
• The combined inflow of more than $10b in the last two weeks is the largest two-week intake for these funds since June 2020, JPMorgan wrote.
• The US junk bond rally spanned across ratings. Robust economic data and easing rate concerns fueled November gains across all high-yield ratings.
• Junk bonds are on track for weekly gains of 0.8%, driving the month-to-date returns to 2.96%, which would be the best since January.
• BB yields tumbled 17 basis points week-to-date to 7.33%. Yields were down 66 basis points month-to-date from near 8% in October. BBs are set to post gains for the week, with week-to-date returns at 0.75%. November gains are at 3%, also the best since January.
• CCC yields have plunged 40 basis points week-to-date, the most in the high yield, to close at 13.84%. Yields tumbled 91 basis points month-to-date from near 15% in October.
• The probability of a soft landing has increased with the recent macro data driving a rally in risk assets in the past two weeks, Brad Rogoff of Barclays wrote in a Friday note.
• Cash surge and a steady rally has drawn US borrowers into the market as $4.3 billion of new junk bonds has priced week-to-date, driving the month’s volume to more than $14 billion, up 53% already from the full month of October.
• Supply is led by refinancing needs. Almost 90% of the supply is to refinance outstanding debt.
• 60% of new bonds were secured notes.
• More borrowers are expected to take advantage of lower yields and chip away at a wave of 2025 maturities.

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 US junk bond primary market has been inundated with new supply after a slow October, with companies selling almost $8 billion so far this week, making it the busiest since mid-September. Monthly volume has topped $9 billion, which is already about 96% of the total for all of October.
• Investors have poured new cash into the asset class since the Federal Reserve indicated last week that it was most likely finished with the most aggressive rate hike campaign in decades. US high yield funds reported a cash haul of $6.26 billion for the week ended Nov. 8, the third biggest on record. This was the first inflow into US junk bond funds in nine weeks, according to Refinitiv Lipper data.
• A rush of borrowers came to take advantage of the current risk-on mood as yields fell 54 basis points in just seven sessions this month to 8.95%. Spreads were down 43 basis points.
• More borrowers are expected to capitalize on the broad risk-on sentiment and refinance a chunk of 2025 notes as companies steadily chip away at the so-called maturity wall of near-term debt. Companies are also repaying some term loans.
• This sudden rush of supply and a change of tone and messaging from Fed officials this week caused concerns about the possibility of another 25 basis-point increase in interest rates and a potential further delay of a possible rate cut.
• Yields rose eight basis points on Thursday to 8.95%, fueled by a 13 basis-point jump in yields for CCCs, the riskiest of junk bonds.
• US junk bonds are headed toward a modest weekly loss of 0.36% after a loss of 0.26% on Thursday, the biggest one-day loss in three weeks.
• The losses came after Fed Chair Powell cautioned that the central bank won’t hesitate to tighten policy further if needed to contain inflation.
• Federal Reserve Governor Michelle Bowman repeated that while she supported the central bank’s decision to keep rates unchanged at last week’s meeting, she still expects policymakers will need to raise interest rates more to contain inflation.
• Federal Reserve Bank of Richmond President Thomas Barkin says “the job isn’t done” to get inflation back to the central bank’s 2% target, and slower demand will likely be required to achieve that goal.

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 scored the biggest one-day gains in nine months, driving yields lower across ratings a day after Federal Reserve Chair Jerome Powell hinted the central bank may now be finished with the most aggressive tightening cycle in four decades. The Fed implied that the recent run-up in long-term Treasury yields reduced the impetus to raise rates again. 10-year Treasury yields dropped by another eight basis points to 4.66%.
• The gains in the US junk bond market spanned across ratings after US labor productivity advanced by the most in three years, softening the inflationary impact of rising wages. CCCs, the riskiest tier of the high yield market, notched the biggest one-day gains since early February. Spreads ended the six-day widening streak and narrowed 50 basis points to 925, the biggest drop in three weeks.
• Bloomberg economists led by Anna Wong reiterated that the FOMC policy statement was dovish overall in the post meeting review on Thursday. Fed officials have not interpreted the strong third-quarter growth numbers as a blowout suggesting that the Federal Reserve was inclined to go on an “ extended rate pause”.
• The Fed held interest-rates steady at 5.25%-5.5% range in the face of tightening financial and credit conditions. However, Powell’s dovish pivot based on market tightening may effectively loosen financial conditions, Barclays strategists Bradley Rogoff and Dominique Toublan wrote in a Friday note.
• Average speculative-grade yields fell 31 basis points to 9.06%, the biggest one-day drop in more than four months.
• Riskiest junk bonds yields tumbled by 49 basis points to 14.21%.
• BBs rallied to record the biggest one-day returns in almost 12 months, with gains of 1.11% on Thursday. BB yields closed at 7.54%, a five-week low.

(Bloomberg)  US Jobs Data Show Broad Cooling After Run of Surprise Strength

• US job growth slowed by more than expected and the unemployment rate rose to an almost two-year high of 3.9%, indicating that employers’ strong demand for workers is beginning to cool.
• Nonfarm payrolls increased 150,000 in October following downward revisions to the prior two months, a Bureau of Labor Statistics report showed Friday. Monthly wage growth slowed.
• The latest figures suggest some cracks are beginning to form in a jobs market that has been gradually normalizing, thanks to an improvement in labor supply over the past year and a tempering in the pace of hiring.
• The rise in the unemployment rate points to a pickup in layoffs — a development employers had so far broadly avoided. The survey of households showed a more than 200,000 increase in those who lost their job or completed a temporary one.
• As investors judged it more likely the Federal Reserve is finished with its run of interest-rate hikes, traders marked down chances of a rate increase in coming months and boosted bets on an earlier cut next year.
• Health care and social assistance, as well as government, drove the payrolls gain. Other categories, however, showed tepid growth or outright declines. Manufacturing payrolls fell by 35,000 in October, largely a reflection of the United Auto Workers union strike. The hit will prove temporary though, given union members have since struck tentative deals with the nation’s largest automakers.
• Easing demand for workers is putting downward pressure on wage growth. Average hourly earnings rose 0.2% last month and were up 4.1% from a year earlier, the smallest annual advance since mid-2021. Earnings for nonsupervisory employees, who make up the majority of workers, increased 0.3% for a second month.
• The jobs report is composed of two surveys: one of households and one of businesses. While both showed signs of weakening, the households poll was particularly concerning, due to rising unemployment, declining participation and a drop in the number of employed workers.
• The smaller gain in payrolls, combined with slower wage growth and a drop in hours worked, led a broad measure of labor market health to stagnate. Moreover, a gauge of take-home pay declined by the most since the start of 2022.

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 bond yields rose for the second day in a row and spreads widened 11 basis points to an almost four-month high of 431, driving modest losses for the second consecutive session. Losses were tempered as 10-year Treasury yields slid from near 5% last week to 4.85% on Thursday, driving modest gains for week ended Friday.
• Sliding Treasury yields in the aftermath of stronger-than-expected growth led to modest gains for the week across the high-yield market. Yields have dropped eight basis points week-to-date, while returns sit at 0.38% for the same period.
• CCC yields, the riskiest part of the junk bond market, climbed 12 basis points on Thursday to close near 14%, a seven-month high.
• Steadily climbing yields and strong growth renewed concerns about rates staying higher for longer pushing nervous investors to pull cash out of US high yield funds.
• US high-yield funds reported outflows of $942m for week ended Oct. 25, the seventh straight week of cash exits.
• Rising yields and Treasury volatility this month kept borrowers on the sidelines.
• The month-to-date volume is a little more than $8b. The week-to-date volume is a modest $2.24b.

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.