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Insights

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $4.7 billion and year to date flows stand at -$55.1 billion.  New issuance for the week was $1.5 billion and year to date issuance is at $93.5 billion.   (Bloomberg)  High Yield Market Highlights U.S. junk bonds are set for […]

November 4, 2022 0 comment
CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $3.7 billion and year to date flows stand at -$59.9 billion.  New issuance for the week was nil and year to date issuance is at $92.0 billion.   (Bloomberg)  High Yield Market Highlights U.S. junk bonds are headed for their […]

October 28, 2022 0 comment
CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.0 billion and year to date flows stand at -$61.7 billion.  New issuance for the week was $1.2 billion and year to date issuance is at $89.6 billion.   (Bloomberg)  High Yield Market Highlights U.S. junk bonds shrugged off the […]

October 14, 2022 0 comment
CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.8 billion and year to date flows stand at -$60.7 billion.  New issuance for the week was nil and year to date issuance is at $88.3 billion.   (Bloomberg)  High Yield Market Highlights U.S. junk bonds were headed for a […]

October 7, 2022 0 comment
CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.1 billion and year to date flows stand at -$54.8 billion.  New issuance for the week was $3.0 billion and year to date issuance is at $82.3 billion.   (Bloomberg)  High Yield Market Highlights U.S. junk bonds are headed for […]

September 16, 2022 0 comment
CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$4.1 billion and year to date flows stand at -$48.3 billion.  New issuance for the week was $0.4 billion and year to date issuance is at $79.3 billion.   (Bloomberg)  High Yield Market Highlights U.S. junk bonds head toward a […]

August 26, 2022 0 comment
CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.1 billion and year to date flows stand at -$44.1 billion.  New issuance for the week was $4.7 billion and year to date issuance is at $78.9 billion.   (Bloomberg)  High Yield Market Highlights U.S. junk bonds are on track […]

August 19, 2022 0 comment
CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.9 billion and year to date flows stand at -$44.8 billion.  New issuance for the week was $3.5 billion and year to date issuance is at $74.7 billion.   (Bloomberg)  High Yield Market Highlights U.S. junk bonds are headed toward […]

August 12, 2022 0 comment
CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $3.3 billion and year to date flows stand at -$45.8 billion.  New issuance for the week was nil and year to date issuance is at $71.2 billion. (Bloomberg)  High Yield Market Highlights The U.S. junk bond market is headed for […]

August 5, 2022 0 comment
CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $4.4 billion and year to date flows stand at -$49.1 billion.  New issuance for the week was $0.7 billion and year to date issuance is at $71.2 billion.   (Bloomberg)  High Yield Market Highlights U.S. junk bonds are headed toward […]

July 29, 2022 0 comment
High Yield Weekly

Timely updates on the news that is most important to the issuers in our portfolios.

2022 Q3 High Yield Quarterly
In the third quarter of 2022, the Bloomberg US Corporate High Yield Index (“Index”) return was ‐0.65% bringing the year to date (“YTD”) return to ‐14.74%. The S&P 500 stock index return was ‐4.89% (including dividends reinvested) for Q3, and the YTD return stands at ‐23.88%. The 10 year US Treasury rate (“10 year”) generally [...]
October 12, 2022 0 comment
Q2 High Yield Quarterly
In the second quarter of 2022, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was -9.83% bringing the year to date (“YTD”) return to -14.19%. The CAM High Yield Composite net of fees total return was -10.44% bringing the YTD net of fees total return to -15.91%. The S&P 500 stock index return [...]
July 9, 2022 0 comment
2022 Q1 High Yield Quarterly
In the first quarter of 2022, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was ‐4.84% while the CAM High Yield Composite net of fees total return was ‐ 6.11%. The S&P 500 stock index return was ‐4.60% (including dividends reinvested) over the same period. The 10 year US Treasury rate (“10 year”) [...]
April 11, 2022 0 comment
2021 Q4 High Yield Quarterly
In the fourth quarter of 2021, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was 0.71% bringing the year to date (“YTD”) return to 5.28%. The CAM High Yield Composite net of fees total return was 0.45% bringing the YTD net of fees return to 4.03%. The S&P 500 stock index return was [...]
January 11, 2022 0 comment
2021 Q3 High Yield Quarterly
In the third quarter of 2021, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was 0.89% bringing the year to date (“YTD”) return to 4.53%. The CAM High Yield Composite net of fees total return was 1.10% bringing the YTD net of fees return to 3.56%. The S&P 500 stock index return was [...]
October 15, 2021 0 comment
2021 Q2 High Yield Quarterly
In the second quarter of 2021, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was 2.74% bringing the year to date (“YTD”) return to 3.62%. The CAM High Yield Composite gross total return was 2.61% bringing the YTD return to 2.59%. The S&P 500 stock index return was 8.55% (including dividends reinvested) for [...]
July 11, 2021 0 comment
2021 Q1 High Yield Quarterly
In the first quarter of 2021, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was 0.85% while the CAM High Yield Composite gross total return was -0.01%. The S&P 500 stock index return was 6.17% (including dividends reinvested) over the same period. The 10 year US Treasury rate (“10 year”) had a steady [...]
April 9, 2021 0 comment
2020 Q4 High Yield Quarterly
In the fourth quarter of 2020, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was 6.45% bringing the year to date (“YTD”) return to 7.11%. The CAM High Yield Composite gross total return for the fourth quarter was 4.78% bringing the YTD return to 7.51%. The S&P 500 stock index return was 12.14% [...]
January 8, 2021 0 comment
2020 Q3 High Yield Quarterly
In the third quarter of 2020, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was 4.60% bringing the year to date (“YTD”) return to 0.62%. The CAM High Yield Composite gross total return for the third quarter was 4.56% bringing the YTD return to 2.60%. The S&P 500 stock index return was 8.93% [...]
October 8, 2020 0 comment
2020 Q2 High Yield Quarterly
In the second quarter of 2020, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was 10.18% bringing the year to date (“YTD”) return to -3.80%. The CAM High Yield Composite gross total return for the second quarter was 9.06% bringing the YTD return to -1.87%. The S&P 500 stock index return was 20.54% [...]
July 12, 2020 0 comment
High Yield Quarterly

Our Portfolio Management team’s perspective on the High Yield strategy for the prior quarter.

CAM Investment Grade Weekly Insights

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 […]

November 10, 2022 0 comment
CAM Investment Grade Weekly Insights

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 […]

November 4, 2022 0 comment
CAM Investment Grade Weekly Insights

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 […]

October 28, 2022 0 comment
CAM Investment Grade Weekly Insights

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 […]

September 16, 2022 0 comment
CAM Investment Grade Weekly Insights

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 […]

September 9, 2022 0 comment
CAM Investment Grade Weekly Insights

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 […]

August 26, 2022 0 comment
CAM Investment Grade Weekly Insights

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 […]

August 19, 2022 0 comment
CAM Investment Grade Weekly Insights

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 […]

August 12, 2022 0 comment
CAM Investment Grade Weekly Insights

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 […]

August 5, 2022 0 comment
CAM Investment Grade Weekly Insights

Investment grade credit performance was mixed this week and it looks as though spreads will finish a basis point or two wider.  The Bloomberg US Corporate Bond Index closed at 146 on Thursday July 28 after having closed the week prior at 144.  The market is better bid as we go to print this Friday […]

July 29, 2022 0 comment
Investment Grade Weekly

Timely updates on the news that is most important to the issuers in our portfolios.

2022 Q3 Investment Grade Quarterly
Negative performance continued to plague the investment grade credit market during the third quarter and 2022 built on its record as the most difficult year of performance that the market has ever experienced. It was a hopeful start to the quarter, as investment grade bonds posted sharply positive returns for the month of July, but [...]
October 12, 2022 0 comment
2022 Q2 Investment Grade Quarterly
The second quarter was another extraordinarily difficult period of performance for investment grade corporate credit. Treasury yields continued to march higher and credit spreads moved wider. The option adjusted spread (OAS) on the Bloomberg US Corporate Bond Index widened by 39 basis points to 155 after having opened the quarter at an OAS of 116. [...]
July 9, 2022 0 comment
2022 Q1 Investment Grade Quarterly
It was an extremely painful start to the year for credit markets as performance suffered due to wider spreads and higher interest rates. During the first quarter, the option adjusted spread (OAS) on the Bloomberg US Corporate Bond Index widened by 24 basis points to 116 after having opened the year at an OAS of [...]
April 11, 2022 0 comment
2021 Q4 Investment Grade Quarterly
Investment grade corporate credit spreads finished the year little changed. For the full year 2021, the option adjusted spread (OAS) on the Bloomberg US Corporate Bond Index tightened by 4 basis points to 92 after having opened the year at an OAS of 96. The 4th quarter saw more movement, with the spread on the [...]
January 11, 2022 0 comment
2021 Q3 Investment Grade Quarterly
Investment grade corporate credit finished the third quarter little changed from where it began the period. The option adjusted spread (OAS) on the Bloomberg Barclays US Corporate Bond Index ended the third quarter at 84 just modestly wider from where it started at a spread of 80. Treasuries finished the quarter nearly unchanged as well. [...]
October 15, 2021 0 comment
2021 Q2 Investment Grade Quarterly
Investment grade corporate credit experienced positive performance during the quarter with a one-two punch of lower Treasury rates and tighter credit spreads. As a result, investors were able to claw back some of the losses that were incurred during the first quarter of 2021. The option adjusted spread (OAS) on the Bloomberg Barclays US Corporate [...]
July 11, 2021 0 comment
2021 Q1 Investment Grade Quarterly
It was a challenging first quarter for corporate bonds as rising interest rates were a headwind for performance across the fixed income universe. Investment grade credit spreads were a bright spot, having shown resiliency during the quarter, but tighter spreads could not overcome volatile interest rates. The option adjusted spread (OAS) on the Bloomberg Barclays [...]
April 9, 2021 0 comment
Q4 2020 INVESTMENT GRADE COMMENTARY
Investment grade corporate bonds rode a roller coaster in 2020 so it should be no surprise that, after peaks and valleys, spreads finished the year nearly right where they started. The option adjusted spread (OAS) on the Bloomberg Barclays US Corporate Bond Index opened the year at 93, but soon thereafter, pandemic induced uncertainty gave [...]
January 8, 2021 0 comment
2020 Q3 Investment Grade Commentary
Corporate credit turned in a solid performance during the third quarter. Spreads were tighter, with the option adjusted spread on the Bloomberg Barclays U.S. Corporate Index opening the quarter at 150 and closing the quarter at 136. Treasuries were almost unchanged on the quarter with the 10yr Treasury opening at 0.66% and closing at 0.68%, [...]
October 8, 2020 0 comment
2020 Q2 INVESTMENT GRADE COMMENTARY
What a difference a quarter makes. The investment grade credit market has experienced a reversal of fortune since the dark days of late March, with both spreads and returns rebounding smartly from the levels seen earlier this year. The resumption of risk appetite led to a sharp tightening in spreads for the Bloomberg Barclays Corporate [...]
July 12, 2020 0 comment
Investment Grade Quarterly

Our Portfolio Management team’s perspective on the Investment Grade strategy for the prior quarter.

December 2018

Key Observations

For the month of December 2018, the yield on the 5-year US Treasury Note ended at 2.51%, 30 basis points lower from the previous month. The Bloomberg Barclays US High Yield Index widened by 108 basis points to 5.26% over Treasuries. The BB Rated Corporate Credit Spread increased by 79 basis points to 3.54%. The B Rated Corporate Credit Spreads widened by 115 basis points to 5.31%. The CCC Rated Corporate Credit Spread increased by 180 basis points to 9.89%.

November 2018

Key Observations

For the month of November 2018, the yield on the 10-year US Treasury Note ended at 2.99%, 15 basis points lower from the previous month. The Bloomberg Barclays US Corporate Index widened by 19 basis points to 1.37% over Treasuries. The A Rated Corporate Credit Spread increased by 13 basis points to 1.09%. The BBB Rated Corporate Credit Spreads widened by 25 basis points to 1.77%.

October 2018

Key Observations

For the month of October 2018, the yield on the 10-year US Treasury Note ended at 3.14%, 8 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index widened by 12 basis points to 1.18% over Treasuries. The A Rated Corporate Credit Spread increased by 11 basis points to 0.96%. The BBB Rated Corporate Credit Spreads widened by 16 basis points to 1.52%.

September 2018

Key Observations

For the month of September 2018, the yield on the 5-year US Treasury Note ended at 2.95%, 21 basis points higher from the previous month. The Bloomberg Barclays US High Yield Index tightened by 22 basis points to 3.16% over Treasuries. The BB Rated Corporate Credit Spread decreased by 15 basis points to 2.06%. The B Rated Corporate Credit Spreads tightened by 23 basis points to 3.12%. The CCC Rated Corporate Credit Spread decreased by 27 basis points to 5.84%.

August 2018

Key Observations

For the month of August 2018, the yield on the 10-year US Treasury Note ended at 2.86%, 10 basis points lower from the previous month. The Bloomberg Barclays US Corporate Index widened by 5 basis points to 1.14% over Treasuries. The A Rated Corporate Credit Spread increased by 3 basis points to 0.92%. The BBB Rated Corporate Credit Spreads widened by 6 basis points to 1.47%.

July 2018

Key Observations

For the month of July 2018, the yield on the 10-year US Treasury Note ended at 2.96%, 10 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index tightened by 14 basis points to 1.09% over Treasuries. The A Rated Corporate Credit Spread decreased by 12 basis points to .89%. The BBB Rated Corporate Credit Spreads tightened by 16 basis points to 1.41%.

June 2018

Key Observations

For the month of June 2018, the yield on the 10-year US Treasury Note ended at 2.86%, remaining the same from the previous month. The Bloomberg Barclays US Corporate Index widened by 8 basis points to 1.23% over Treasuries. The A Rated Corporate Credit Spread increased by 7 basis points to 1.01%. The BBB Rated Corporate Credit Spreads widened by 8 basis points to 1.57%.

May 2018

Key Observations

For the month of May 2018, the yield on the 10-year US Treasury Note ended at 2.86%, 9 basis points lower from the previous month. The Bloomberg Barclays US Corporate Index widened by 7 basis point to 1.15% over Treasuries. The A Rated Corporate Credit Spread increased by 6 basis points to 0.94%. The BBB Rated Corporate Credit Spread widened by 10 basis point to 1.49%.

April 2018

Key Observations

For the month of April 2018, the yield on the 10-year US Treasury Note ended at 2.95%, 21 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index tightened by 1 basis point to 1.08% over Treasuries. The A Rated Corporate Credit Spread decreased by 2 basis points to 0.88%. The BBB Rated Corporate Credit Spreads widened by 1 basis point to 1.39%.

March 2018

Key Observations

For the month of March 2018, the yield on the 10-year US Treasury ended at 2.74%, 12 basis points lower from the previous month. The Bloomberg Barclays US Corporate Index widened by 13 basis points to 1.09% over Treasuries. The A Rated Corporate Credit Spread increased by 12 basis points to 0.90%. The BBB Rated Corporate Credit Spreads widened by 15 basis points to 1.38%.

February 2018

Key Observations

For the month of February 2018, the yield on the 10-year US Treasury ended at 2.86%, 15 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index widened by 10 basis points to 0.96% over Treasuries. The A Rated Corporate Credit Spread increased by 9 basis points to 0.78%. The BBB Rated Corporate Credit Spreads widened by 11 basis points to 1.23%.

January 2018

Key Observations

For the month of January 2018, the yield on the 10-year US Treasury ended at 2.71%, 30 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index tightened by 7 basis points to 0.86% over Treasuries. The A Rated Corporate Credit Spread decreased by 4 basis points to 0.69%. The BBB Rated Corporate Credit Spreads tightened by 12 basis points to 1.12%.

Yield Spread Analysis

A monthly summary of changes in Corporate Bond Yields and Spreads

Q3 – 2022

The recent hotter than expected jobs data sent the Dow Jones Industrial Average down over 600 points on Friday, October 7. That day the 10-year Treasury note yield rose to 3.88% and reached a multiyear high of 4.03% on October 14 (source; Bloomberg 10/18/22). Investors continue to react negatively to strong jobs data that will cause the Federal Reserve to continue its aggressive interest rate increases to battle inflation.

Q2 – 2022

So, what drives investor interest in the 30-year auction and longer maturities? They might be measuring the impact of present day Fed rate and monetary actions on future economic activity and inflation. Some strategists see the 2-10 year curve inversion signaling a recession. The 10-year Treasury yields 2.92% while the 2-year Treasury yields 3.14%, today (source: Bloomberg 7/13/22). The curve is inverted the most since August of 2000 (source: ibid).

Q1 – 2022

“This is not the kind of inflation from the 1960s and 70s” (Chicago FED president, Charles Evans 4/11/22). During that event before the Detroit Economic Club, Evans contended that the current spurt in prices is temporary, rather than sustaining and that inflation will revert back to pre-pandemic levels in a year or two (source: MarketWatch 4/13/22). The chart on page three shows the longer period, five to ten year inflation expectations of surveys by the University of Michigan remain subdued at about three percent.

Q4 2021

Inflation outlooks show near term increases, but significant declines as the economy normalizes, moving beyond the abnormalities generated by the pan-demic. At the end of the 4th quarter the 10-year Treasury closed at 1.51%, an insignificant increase from 1.49% at the end of the 3rd quarter. Looking out over the next year, the chart above shows inflation expectations on a steady downward decline. (source: Bloomberg).

Q3 2021

Inflation concerns remain low at the end of the third quarter with the 10-year Treasury closing at 1.49%. This is just slightly higher than the 1.47% yield posted on 6/30/21. Looking out over the next few years, growth and inflation expectations in the above chart are tame. (source: Bloomberg).

Q2 – 2021

Inflation concerns subsided in the second quarter. The first half 2021 Investment Grade Index total return of -1.06% was a sharp reversal of the first quarter’s -4.5% (source: CreditSights and BAML). The High-Yield Index resiliency strengthened with a first half 2021 total return of 3.70% versus the 90 basis point positive return for the first quarter (source: ibid).

Q1 – 2021

Inflation concerns rocked the bond markets during the first quarter driving the Investment Grade Index down –4.5% (source: CreditSights and BAML). However, the High-Yield Index showed resiliency and posted a 90 basis point positive return for the first quarter (source: ibid).

Q4 – 2020

The Federal Reserve’s Vice Chairman, Richard Clarida stated that “the development of several effective vaccines indicates to me that the prospects for the economy in 2021 and beyond have brightened and the downside risk to the outlook has diminished (source: Bloomberg  news 1/8/21). He did caution that it would take “some time” for economic activity and employment to reach the peak level of last February.

Q3 – 2020

Even with all the uncertainties created by the pandemic, third quarter GDP forecasts are up around 30%. The Federal Reserve’s Bullard weighs in at 30% (source: Wall Street journal 10/6/20), while J.P. Morgan forecasts 34.5% (source: J.P. Morgan Global economic outlook survey).

Q2 – 2020

It has been barely 4-months since the pandemic lead to the shutdown of not only the US but most nations’ economies. The human and economic damage and suffering will continue for some unknown time.

Q1 – 2020

The recent violent fall in prices of many asset classes is on a scale most of us have not experienced. The repricing of equities has lead Malkiel (quoted above) to argue for investors to increase allocation to equities. By extension, this would apply to other asset classes experiencing significant price declines whose fortunes are tied to corporations and businesses. So, corporate bonds would also appear to be attractive investments.

Q4 – 2019

2019 was a banner year for stocks and bonds , and 2020 is starting out robustly. The new Canada Mexico trade deal signed by President Trump and the trade agreement with China could lead to higher GDP in the USA, given the more level playing field they create. Also, we could see a large increase in corporate capital spending now, since the deals reduce many trade uncertainties. Furthermore, the China deal leaves many of the tariffs in place, which is meant to motivate the Chinese to enact the broader phase two trade agreement.

Q3 – 2019

As we move into the 4th quarter of 2019, talk of negative interest rates continues. The recent U.S. Govern-ment’s auction of 30-year bonds on Thursday, October 10 drew a record low yield of 2.17% (source: Bloomberg 10/10/19). This is considered a strong sign of declining investor expectations for economic growth and inflation. The trend is global with the U.K. and Germany also posting record low yields for their respective 30-year bonds (source: Bloomberg 10/10/19).

Q2 – 2019

Rising uncertainty and muted inflation “strengthens the case for a somewhat more accommodative stance of policy.” Officials “will act as appropriate to sustain the expansion” – Federal Reserve Chairman Jerome Powell as reported in The Wall Street Journal 7/16/19.

What a difference a year and even 6-months makes. For the past two years, Investors were fleeing the bond markets as forecasting rising Treasury Bond yields portended red ink. Just last October the 10-year Treasury Bond yielded 3.24% at its peak (source: Macrotrends 10-year Treasury historical chart 7/17/19).

Q1 – 2019

The outlook for interest rates has steadily evolved over the first quarter. Now the Fed is unanimous in their outlook with all members voting to maintain the current level of interest rates (source: Federal Reserve board press release 3/20/19) . Furthermore, the minutes infer that the members have an aversion to increasing interest rates further, because of the increasing risks to the U.S. economy from slowing global growth and lower inflation, that surprised Fed officials.

Q4- 2018

“We’re in a place where we can be patient and flexible and wait and see what does evolve” Federal Reserve chairman, Powell 1/11/19 regarding future interest rate increases

These comments made by the Fed chairman exemplify the changed position of the Fed. Given the moderating growth of the global economy and some U.S. economic measures, the Fed is signaling that they can now be patient about further increases in interest rates.

Q3 – 2018

Interest rates moved higher in the third quarter, and fixed income investors with long- term investment horizons might say, “It’s about time.” Why? (1) Bond interest delivers an important, ongoing income stream, (2) is important for wealth preservation, and (3) can be a significant element of fixed income returns.

Q2 – 2018

The economy picked up momentum over the second quarter as the impact of the Trump tax cuts and regulatory relief took effect.

Q1 – 2018

A changing sentiment is enveloping the bond markets, spooking investors. The 10- year Treasury began 2018 at 2.40%, below its 2017 March high of 2.63% (source: Bloomberg). This year its yield moved as high as 2.95% on 2/21/18, but finished the quarter at 2.74%.

Market Review & Outlook

Our quarterly newsletter, which features discussion of macroeconomic trends, market dynamics, and their impact on Corporate Bonds.

Cash is King

The saying “Cash is King”, popularized by Volvo CEO Pehr Gylrnhammar during the 1987 market crash, has become a rallying cry during periods of market volatility. The premise seems sound, no volatility in times of market turmoil, instant liquidity to deploy capital when pricing seems reasonable, and we all know having cash on hand for private transactions certainly beats the questions that come with check or credit. But is this always the case?

Economists and Weathermen

The old joke about economists being created to make weathermen look good has been around for as long as finance and meteorology. To be fair both are very tough professions, trying to predict with a high degree of certainty a force that changes rapidly and affects the lives of many. In an attempt to accomplish that feat, both professions have poured the most significant advancements of theory, science, and technology into their practice, trying as they might to keep the next market correction / rebound or natural weather disaster / beautiful sunny day from being a surprise. As we know all too well, this unfortunately doesn’t always work out, and we are sometimes left on the wrong side of the trade or soaking wet on the golf course.

Balancing Act

As time goes by, the need for balance in our lives becomes increasingly important. We must maintain a work – life balance to take care of career, family, and self. We need to maintain a balanced budget to make sure we prioritize what we want, what we need, and what we must save for the future. And of course, we need a balanced diet to curtail eating some of the comfort foods we love to ensure health and longevity. It’s a balancing act worthy of the Flying Wallendas.

The same could be said for our investment portfolios. The idea of optimizing a portfolio to maximize return based upon an investor’s comfort level with risk is as intuitive as balancing your checkbook, or your diet. It can also present similar challenges. Often investors will look to abandon their fixed income allocations when yields are low, when they think rates are set to rise, or when outsized opportunities for gain and/or higher yields present themselves in other income producing investments.

$25 Par Bonds – A Questionable Value Proposition

There are many reasons that an investor may employ a professional bond manager. One of the most important considerations when working with a professional bond manager is its access to institutional trading desks and its ability to purchase bonds at a fair or attractive price. Many investors are aware that equities are exchange traded, which allows investors to easily buy or sell equity securities with relatively low transaction costs.

Drawdowns 2018

With markets focused on the actions of the Federal Reserve, many investors have chosen income producing investments that are less sensitive to interest rate movements. Though these asset classes are less correlated with the actions of the Fed, they bring a risk profile all their own in periods of market stress.

Dalbar Study 2020

Financial professionals not only need to be effective investors but also behavioral finance coaches for their clients. When markets draw down or are volatile, questions will arise from concerned clients and perspective will need to be provided. Since 1994 DALBAR has published their annual Quantitative Analysis of Investor Behavior report to help Financial Professionals discuss the prudence of a long-term, buy and hold approach.

Bigger Isn’t Always Better in Bonds

It may no longer be true that “bigger is better” when picking a corporate bond manager. After the financial crisis, reforms to cut global risks have changed some basic features of the corporate bond market. Bond market volumes are healthy and exceed levels of 2007, but the average bond transaction is 40% smaller today.

All Bank Loans are not Created Equal

As a Corporate Bond Manager we often receive inquiries regarding our thoughts on the Bank Loan Market especially in the current interest rate environment where the 10-year US Treasury Bond yield has increased 1% over the last 9 months. We believe that the asset class may warrant a place in an investor’s asset allocation and complement other credit sectors such as Investment Grade Corporates and High Yield but we suggest exercising caution, as all loans are not created equal.

Bond Laddering vs. Single Maturity Investing

It is common for individual fixed income investors to construct portfolios utilizing a “ladder” strategy, purchasing bonds over a specific time frame, 5 or 10 years for example, and in equal installments – an issue coming due each calendar year. This approach is fairly straight forward; however, we find that investors pursuing this type of strategy give up potential return.

Whitepapers

Selected topics that may impact our client community are selected for deeper research and posted here.

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $4.7 billion and year to date flows stand at -$55.1 billion.  New issuance for the week was $1.5 billion and year to date issuance is at $93.5 billion.   (Bloomberg)  High Yield Market Highlights U.S. junk bonds are set for […]

November 4, 2022 0 comment
CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $3.7 billion and year to date flows stand at -$59.9 billion.  New issuance for the week was nil and year to date issuance is at $92.0 billion.   (Bloomberg)  High Yield Market Highlights U.S. junk bonds are headed for their […]

October 28, 2022 0 comment
CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.0 billion and year to date flows stand at -$61.7 billion.  New issuance for the week was $1.2 billion and year to date issuance is at $89.6 billion.   (Bloomberg)  High Yield Market Highlights U.S. junk bonds shrugged off the […]

October 14, 2022 0 comment
CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.8 billion and year to date flows stand at -$60.7 billion.  New issuance for the week was nil and year to date issuance is at $88.3 billion.   (Bloomberg)  High Yield Market Highlights U.S. junk bonds were headed for a […]

October 7, 2022 0 comment
CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.1 billion and year to date flows stand at -$54.8 billion.  New issuance for the week was $3.0 billion and year to date issuance is at $82.3 billion.   (Bloomberg)  High Yield Market Highlights U.S. junk bonds are headed for […]

September 16, 2022 0 comment
CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$4.1 billion and year to date flows stand at -$48.3 billion.  New issuance for the week was $0.4 billion and year to date issuance is at $79.3 billion.   (Bloomberg)  High Yield Market Highlights U.S. junk bonds head toward a […]

August 26, 2022 0 comment
CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.1 billion and year to date flows stand at -$44.1 billion.  New issuance for the week was $4.7 billion and year to date issuance is at $78.9 billion.   (Bloomberg)  High Yield Market Highlights U.S. junk bonds are on track […]

August 19, 2022 0 comment
CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.9 billion and year to date flows stand at -$44.8 billion.  New issuance for the week was $3.5 billion and year to date issuance is at $74.7 billion.   (Bloomberg)  High Yield Market Highlights U.S. junk bonds are headed toward […]

August 12, 2022 0 comment
CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $3.3 billion and year to date flows stand at -$45.8 billion.  New issuance for the week was nil and year to date issuance is at $71.2 billion. (Bloomberg)  High Yield Market Highlights The U.S. junk bond market is headed for […]

August 5, 2022 0 comment
CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $4.4 billion and year to date flows stand at -$49.1 billion.  New issuance for the week was $0.7 billion and year to date issuance is at $71.2 billion.   (Bloomberg)  High Yield Market Highlights U.S. junk bonds are headed toward […]

July 29, 2022 0 comment
High Yield Weekly

Timely updates on the news that is most important to the issuers in our portfolios.

2022 Q3 High Yield Quarterly
In the third quarter of 2022, the Bloomberg US Corporate High Yield Index (“Index”) return was ‐0.65% bringing the year to date (“YTD”) return to ‐14.74%. The S&P 500 stock index return was ‐4.89% (including dividends reinvested) for Q3, and the YTD return stands at ‐23.88%. The 10 year US Treasury rate (“10 year”) generally [...]
October 12, 2022 0 comment
Q2 High Yield Quarterly
In the second quarter of 2022, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was -9.83% bringing the year to date (“YTD”) return to -14.19%. The CAM High Yield Composite net of fees total return was -10.44% bringing the YTD net of fees total return to -15.91%. The S&P 500 stock index return [...]
July 9, 2022 0 comment
2022 Q1 High Yield Quarterly
In the first quarter of 2022, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was ‐4.84% while the CAM High Yield Composite net of fees total return was ‐ 6.11%. The S&P 500 stock index return was ‐4.60% (including dividends reinvested) over the same period. The 10 year US Treasury rate (“10 year”) [...]
April 11, 2022 0 comment
2021 Q4 High Yield Quarterly
In the fourth quarter of 2021, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was 0.71% bringing the year to date (“YTD”) return to 5.28%. The CAM High Yield Composite net of fees total return was 0.45% bringing the YTD net of fees return to 4.03%. The S&P 500 stock index return was [...]
January 11, 2022 0 comment
2021 Q3 High Yield Quarterly
In the third quarter of 2021, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was 0.89% bringing the year to date (“YTD”) return to 4.53%. The CAM High Yield Composite net of fees total return was 1.10% bringing the YTD net of fees return to 3.56%. The S&P 500 stock index return was [...]
October 15, 2021 0 comment
2021 Q2 High Yield Quarterly
In the second quarter of 2021, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was 2.74% bringing the year to date (“YTD”) return to 3.62%. The CAM High Yield Composite gross total return was 2.61% bringing the YTD return to 2.59%. The S&P 500 stock index return was 8.55% (including dividends reinvested) for [...]
July 11, 2021 0 comment
2021 Q1 High Yield Quarterly
In the first quarter of 2021, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was 0.85% while the CAM High Yield Composite gross total return was -0.01%. The S&P 500 stock index return was 6.17% (including dividends reinvested) over the same period. The 10 year US Treasury rate (“10 year”) had a steady [...]
April 9, 2021 0 comment
2020 Q4 High Yield Quarterly
In the fourth quarter of 2020, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was 6.45% bringing the year to date (“YTD”) return to 7.11%. The CAM High Yield Composite gross total return for the fourth quarter was 4.78% bringing the YTD return to 7.51%. The S&P 500 stock index return was 12.14% [...]
January 8, 2021 0 comment
2020 Q3 High Yield Quarterly
In the third quarter of 2020, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was 4.60% bringing the year to date (“YTD”) return to 0.62%. The CAM High Yield Composite gross total return for the third quarter was 4.56% bringing the YTD return to 2.60%. The S&P 500 stock index return was 8.93% [...]
October 8, 2020 0 comment
2020 Q2 High Yield Quarterly
In the second quarter of 2020, the Bloomberg Barclays US Corporate High Yield Index (“Index”) return was 10.18% bringing the year to date (“YTD”) return to -3.80%. The CAM High Yield Composite gross total return for the second quarter was 9.06% bringing the YTD return to -1.87%. The S&P 500 stock index return was 20.54% [...]
July 12, 2020 0 comment
High Yield Quarterly

Our Portfolio Management team’s perspective on the High Yield strategy for the prior quarter.

CAM Investment Grade Weekly Insights

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 […]

November 10, 2022 0 comment
CAM Investment Grade Weekly Insights

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 […]

November 4, 2022 0 comment
CAM Investment Grade Weekly Insights

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 […]

October 28, 2022 0 comment
CAM Investment Grade Weekly Insights

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 […]

September 16, 2022 0 comment
CAM Investment Grade Weekly Insights

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 […]

September 9, 2022 0 comment
CAM Investment Grade Weekly Insights

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 […]

August 26, 2022 0 comment
CAM Investment Grade Weekly Insights

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 […]

August 19, 2022 0 comment
CAM Investment Grade Weekly Insights

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 […]

August 12, 2022 0 comment
CAM Investment Grade Weekly Insights

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 […]

August 5, 2022 0 comment
CAM Investment Grade Weekly Insights

Investment grade credit performance was mixed this week and it looks as though spreads will finish a basis point or two wider.  The Bloomberg US Corporate Bond Index closed at 146 on Thursday July 28 after having closed the week prior at 144.  The market is better bid as we go to print this Friday […]

July 29, 2022 0 comment
Investment Grade Weekly

Timely updates on the news that is most important to the issuers in our portfolios.

2022 Q3 Investment Grade Quarterly
Negative performance continued to plague the investment grade credit market during the third quarter and 2022 built on its record as the most difficult year of performance that the market has ever experienced. It was a hopeful start to the quarter, as investment grade bonds posted sharply positive returns for the month of July, but [...]
October 12, 2022 0 comment
2022 Q2 Investment Grade Quarterly
The second quarter was another extraordinarily difficult period of performance for investment grade corporate credit. Treasury yields continued to march higher and credit spreads moved wider. The option adjusted spread (OAS) on the Bloomberg US Corporate Bond Index widened by 39 basis points to 155 after having opened the quarter at an OAS of 116. [...]
July 9, 2022 0 comment
2022 Q1 Investment Grade Quarterly
It was an extremely painful start to the year for credit markets as performance suffered due to wider spreads and higher interest rates. During the first quarter, the option adjusted spread (OAS) on the Bloomberg US Corporate Bond Index widened by 24 basis points to 116 after having opened the year at an OAS of [...]
April 11, 2022 0 comment
2021 Q4 Investment Grade Quarterly
Investment grade corporate credit spreads finished the year little changed. For the full year 2021, the option adjusted spread (OAS) on the Bloomberg US Corporate Bond Index tightened by 4 basis points to 92 after having opened the year at an OAS of 96. The 4th quarter saw more movement, with the spread on the [...]
January 11, 2022 0 comment
2021 Q3 Investment Grade Quarterly
Investment grade corporate credit finished the third quarter little changed from where it began the period. The option adjusted spread (OAS) on the Bloomberg Barclays US Corporate Bond Index ended the third quarter at 84 just modestly wider from where it started at a spread of 80. Treasuries finished the quarter nearly unchanged as well. [...]
October 15, 2021 0 comment
2021 Q2 Investment Grade Quarterly
Investment grade corporate credit experienced positive performance during the quarter with a one-two punch of lower Treasury rates and tighter credit spreads. As a result, investors were able to claw back some of the losses that were incurred during the first quarter of 2021. The option adjusted spread (OAS) on the Bloomberg Barclays US Corporate [...]
July 11, 2021 0 comment
2021 Q1 Investment Grade Quarterly
It was a challenging first quarter for corporate bonds as rising interest rates were a headwind for performance across the fixed income universe. Investment grade credit spreads were a bright spot, having shown resiliency during the quarter, but tighter spreads could not overcome volatile interest rates. The option adjusted spread (OAS) on the Bloomberg Barclays [...]
April 9, 2021 0 comment
Q4 2020 INVESTMENT GRADE COMMENTARY
Investment grade corporate bonds rode a roller coaster in 2020 so it should be no surprise that, after peaks and valleys, spreads finished the year nearly right where they started. The option adjusted spread (OAS) on the Bloomberg Barclays US Corporate Bond Index opened the year at 93, but soon thereafter, pandemic induced uncertainty gave [...]
January 8, 2021 0 comment
2020 Q3 Investment Grade Commentary
Corporate credit turned in a solid performance during the third quarter. Spreads were tighter, with the option adjusted spread on the Bloomberg Barclays U.S. Corporate Index opening the quarter at 150 and closing the quarter at 136. Treasuries were almost unchanged on the quarter with the 10yr Treasury opening at 0.66% and closing at 0.68%, [...]
October 8, 2020 0 comment
2020 Q2 INVESTMENT GRADE COMMENTARY
What a difference a quarter makes. The investment grade credit market has experienced a reversal of fortune since the dark days of late March, with both spreads and returns rebounding smartly from the levels seen earlier this year. The resumption of risk appetite led to a sharp tightening in spreads for the Bloomberg Barclays Corporate [...]
July 12, 2020 0 comment
Investment Grade Quarterly

Our Portfolio Management team’s perspective on the Investment Grade strategy for the prior quarter.

December 2018

Key Observations

For the month of December 2018, the yield on the 5-year US Treasury Note ended at 2.51%, 30 basis points lower from the previous month. The Bloomberg Barclays US High Yield Index widened by 108 basis points to 5.26% over Treasuries. The BB Rated Corporate Credit Spread increased by 79 basis points to 3.54%. The B Rated Corporate Credit Spreads widened by 115 basis points to 5.31%. The CCC Rated Corporate Credit Spread increased by 180 basis points to 9.89%.

November 2018

Key Observations

For the month of November 2018, the yield on the 10-year US Treasury Note ended at 2.99%, 15 basis points lower from the previous month. The Bloomberg Barclays US Corporate Index widened by 19 basis points to 1.37% over Treasuries. The A Rated Corporate Credit Spread increased by 13 basis points to 1.09%. The BBB Rated Corporate Credit Spreads widened by 25 basis points to 1.77%.

October 2018

Key Observations

For the month of October 2018, the yield on the 10-year US Treasury Note ended at 3.14%, 8 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index widened by 12 basis points to 1.18% over Treasuries. The A Rated Corporate Credit Spread increased by 11 basis points to 0.96%. The BBB Rated Corporate Credit Spreads widened by 16 basis points to 1.52%.

September 2018

Key Observations

For the month of September 2018, the yield on the 5-year US Treasury Note ended at 2.95%, 21 basis points higher from the previous month. The Bloomberg Barclays US High Yield Index tightened by 22 basis points to 3.16% over Treasuries. The BB Rated Corporate Credit Spread decreased by 15 basis points to 2.06%. The B Rated Corporate Credit Spreads tightened by 23 basis points to 3.12%. The CCC Rated Corporate Credit Spread decreased by 27 basis points to 5.84%.

August 2018

Key Observations

For the month of August 2018, the yield on the 10-year US Treasury Note ended at 2.86%, 10 basis points lower from the previous month. The Bloomberg Barclays US Corporate Index widened by 5 basis points to 1.14% over Treasuries. The A Rated Corporate Credit Spread increased by 3 basis points to 0.92%. The BBB Rated Corporate Credit Spreads widened by 6 basis points to 1.47%.

July 2018

Key Observations

For the month of July 2018, the yield on the 10-year US Treasury Note ended at 2.96%, 10 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index tightened by 14 basis points to 1.09% over Treasuries. The A Rated Corporate Credit Spread decreased by 12 basis points to .89%. The BBB Rated Corporate Credit Spreads tightened by 16 basis points to 1.41%.

June 2018

Key Observations

For the month of June 2018, the yield on the 10-year US Treasury Note ended at 2.86%, remaining the same from the previous month. The Bloomberg Barclays US Corporate Index widened by 8 basis points to 1.23% over Treasuries. The A Rated Corporate Credit Spread increased by 7 basis points to 1.01%. The BBB Rated Corporate Credit Spreads widened by 8 basis points to 1.57%.

May 2018

Key Observations

For the month of May 2018, the yield on the 10-year US Treasury Note ended at 2.86%, 9 basis points lower from the previous month. The Bloomberg Barclays US Corporate Index widened by 7 basis point to 1.15% over Treasuries. The A Rated Corporate Credit Spread increased by 6 basis points to 0.94%. The BBB Rated Corporate Credit Spread widened by 10 basis point to 1.49%.

April 2018

Key Observations

For the month of April 2018, the yield on the 10-year US Treasury Note ended at 2.95%, 21 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index tightened by 1 basis point to 1.08% over Treasuries. The A Rated Corporate Credit Spread decreased by 2 basis points to 0.88%. The BBB Rated Corporate Credit Spreads widened by 1 basis point to 1.39%.

March 2018

Key Observations

For the month of March 2018, the yield on the 10-year US Treasury ended at 2.74%, 12 basis points lower from the previous month. The Bloomberg Barclays US Corporate Index widened by 13 basis points to 1.09% over Treasuries. The A Rated Corporate Credit Spread increased by 12 basis points to 0.90%. The BBB Rated Corporate Credit Spreads widened by 15 basis points to 1.38%.

February 2018

Key Observations

For the month of February 2018, the yield on the 10-year US Treasury ended at 2.86%, 15 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index widened by 10 basis points to 0.96% over Treasuries. The A Rated Corporate Credit Spread increased by 9 basis points to 0.78%. The BBB Rated Corporate Credit Spreads widened by 11 basis points to 1.23%.

January 2018

Key Observations

For the month of January 2018, the yield on the 10-year US Treasury ended at 2.71%, 30 basis points higher from the previous month. The Bloomberg Barclays US Corporate Index tightened by 7 basis points to 0.86% over Treasuries. The A Rated Corporate Credit Spread decreased by 4 basis points to 0.69%. The BBB Rated Corporate Credit Spreads tightened by 12 basis points to 1.12%.

Yield Spread Analysis

A monthly summary of changes in Corporate Bond Yields and Spreads

Q3 – 2022

The recent hotter than expected jobs data sent the Dow Jones Industrial Average down over 600 points on Friday, October 7. That day the 10-year Treasury note yield rose to 3.88% and reached a multiyear high of 4.03% on October 14 (source; Bloomberg 10/18/22). Investors continue to react negatively to strong jobs data that will cause the Federal Reserve to continue its aggressive interest rate increases to battle inflation.

Q2 – 2022

So, what drives investor interest in the 30-year auction and longer maturities? They might be measuring the impact of present day Fed rate and monetary actions on future economic activity and inflation. Some strategists see the 2-10 year curve inversion signaling a recession. The 10-year Treasury yields 2.92% while the 2-year Treasury yields 3.14%, today (source: Bloomberg 7/13/22). The curve is inverted the most since August of 2000 (source: ibid).

Q1 – 2022

“This is not the kind of inflation from the 1960s and 70s” (Chicago FED president, Charles Evans 4/11/22). During that event before the Detroit Economic Club, Evans contended that the current spurt in prices is temporary, rather than sustaining and that inflation will revert back to pre-pandemic levels in a year or two (source: MarketWatch 4/13/22). The chart on page three shows the longer period, five to ten year inflation expectations of surveys by the University of Michigan remain subdued at about three percent.

Q4 2021

Inflation outlooks show near term increases, but significant declines as the economy normalizes, moving beyond the abnormalities generated by the pan-demic. At the end of the 4th quarter the 10-year Treasury closed at 1.51%, an insignificant increase from 1.49% at the end of the 3rd quarter. Looking out over the next year, the chart above shows inflation expectations on a steady downward decline. (source: Bloomberg).

Q3 2021

Inflation concerns remain low at the end of the third quarter with the 10-year Treasury closing at 1.49%. This is just slightly higher than the 1.47% yield posted on 6/30/21. Looking out over the next few years, growth and inflation expectations in the above chart are tame. (source: Bloomberg).

Q2 – 2021

Inflation concerns subsided in the second quarter. The first half 2021 Investment Grade Index total return of -1.06% was a sharp reversal of the first quarter’s -4.5% (source: CreditSights and BAML). The High-Yield Index resiliency strengthened with a first half 2021 total return of 3.70% versus the 90 basis point positive return for the first quarter (source: ibid).

Q1 – 2021

Inflation concerns rocked the bond markets during the first quarter driving the Investment Grade Index down –4.5% (source: CreditSights and BAML). However, the High-Yield Index showed resiliency and posted a 90 basis point positive return for the first quarter (source: ibid).

Q4 – 2020

The Federal Reserve’s Vice Chairman, Richard Clarida stated that “the development of several effective vaccines indicates to me that the prospects for the economy in 2021 and beyond have brightened and the downside risk to the outlook has diminished (source: Bloomberg  news 1/8/21). He did caution that it would take “some time” for economic activity and employment to reach the peak level of last February.

Q3 – 2020

Even with all the uncertainties created by the pandemic, third quarter GDP forecasts are up around 30%. The Federal Reserve’s Bullard weighs in at 30% (source: Wall Street journal 10/6/20), while J.P. Morgan forecasts 34.5% (source: J.P. Morgan Global economic outlook survey).

Q2 – 2020

It has been barely 4-months since the pandemic lead to the shutdown of not only the US but most nations’ economies. The human and economic damage and suffering will continue for some unknown time.

Q1 – 2020

The recent violent fall in prices of many asset classes is on a scale most of us have not experienced. The repricing of equities has lead Malkiel (quoted above) to argue for investors to increase allocation to equities. By extension, this would apply to other asset classes experiencing significant price declines whose fortunes are tied to corporations and businesses. So, corporate bonds would also appear to be attractive investments.

Q4 – 2019

2019 was a banner year for stocks and bonds , and 2020 is starting out robustly. The new Canada Mexico trade deal signed by President Trump and the trade agreement with China could lead to higher GDP in the USA, given the more level playing field they create. Also, we could see a large increase in corporate capital spending now, since the deals reduce many trade uncertainties. Furthermore, the China deal leaves many of the tariffs in place, which is meant to motivate the Chinese to enact the broader phase two trade agreement.

Q3 – 2019

As we move into the 4th quarter of 2019, talk of negative interest rates continues. The recent U.S. Govern-ment’s auction of 30-year bonds on Thursday, October 10 drew a record low yield of 2.17% (source: Bloomberg 10/10/19). This is considered a strong sign of declining investor expectations for economic growth and inflation. The trend is global with the U.K. and Germany also posting record low yields for their respective 30-year bonds (source: Bloomberg 10/10/19).

Q2 – 2019

Rising uncertainty and muted inflation “strengthens the case for a somewhat more accommodative stance of policy.” Officials “will act as appropriate to sustain the expansion” – Federal Reserve Chairman Jerome Powell as reported in The Wall Street Journal 7/16/19.

What a difference a year and even 6-months makes. For the past two years, Investors were fleeing the bond markets as forecasting rising Treasury Bond yields portended red ink. Just last October the 10-year Treasury Bond yielded 3.24% at its peak (source: Macrotrends 10-year Treasury historical chart 7/17/19).

Q1 – 2019

The outlook for interest rates has steadily evolved over the first quarter. Now the Fed is unanimous in their outlook with all members voting to maintain the current level of interest rates (source: Federal Reserve board press release 3/20/19) . Furthermore, the minutes infer that the members have an aversion to increasing interest rates further, because of the increasing risks to the U.S. economy from slowing global growth and lower inflation, that surprised Fed officials.

Q4- 2018

“We’re in a place where we can be patient and flexible and wait and see what does evolve” Federal Reserve chairman, Powell 1/11/19 regarding future interest rate increases

These comments made by the Fed chairman exemplify the changed position of the Fed. Given the moderating growth of the global economy and some U.S. economic measures, the Fed is signaling that they can now be patient about further increases in interest rates.

Q3 – 2018

Interest rates moved higher in the third quarter, and fixed income investors with long- term investment horizons might say, “It’s about time.” Why? (1) Bond interest delivers an important, ongoing income stream, (2) is important for wealth preservation, and (3) can be a significant element of fixed income returns.

Q2 – 2018

The economy picked up momentum over the second quarter as the impact of the Trump tax cuts and regulatory relief took effect.

Q1 – 2018

A changing sentiment is enveloping the bond markets, spooking investors. The 10- year Treasury began 2018 at 2.40%, below its 2017 March high of 2.63% (source: Bloomberg). This year its yield moved as high as 2.95% on 2/21/18, but finished the quarter at 2.74%.

Market Review & Outlook

Our quarterly newsletter, which features discussion of macroeconomic trends, market dynamics, and their impact on Corporate Bonds.

Cash is King

The saying “Cash is King”, popularized by Volvo CEO Pehr Gylrnhammar during the 1987 market crash, has become a rallying cry during periods of market volatility. The premise seems sound, no volatility in times of market turmoil, instant liquidity to deploy capital when pricing seems reasonable, and we all know having cash on hand for private transactions certainly beats the questions that come with check or credit. But is this always the case?

Economists and Weathermen

The old joke about economists being created to make weathermen look good has been around for as long as finance and meteorology. To be fair both are very tough professions, trying to predict with a high degree of certainty a force that changes rapidly and affects the lives of many. In an attempt to accomplish that feat, both professions have poured the most significant advancements of theory, science, and technology into their practice, trying as they might to keep the next market correction / rebound or natural weather disaster / beautiful sunny day from being a surprise. As we know all too well, this unfortunately doesn’t always work out, and we are sometimes left on the wrong side of the trade or soaking wet on the golf course.

Balancing Act

As time goes by, the need for balance in our lives becomes increasingly important. We must maintain a work – life balance to take care of career, family, and self. We need to maintain a balanced budget to make sure we prioritize what we want, what we need, and what we must save for the future. And of course, we need a balanced diet to curtail eating some of the comfort foods we love to ensure health and longevity. It’s a balancing act worthy of the Flying Wallendas.

The same could be said for our investment portfolios. The idea of optimizing a portfolio to maximize return based upon an investor’s comfort level with risk is as intuitive as balancing your checkbook, or your diet. It can also present similar challenges. Often investors will look to abandon their fixed income allocations when yields are low, when they think rates are set to rise, or when outsized opportunities for gain and/or higher yields present themselves in other income producing investments.

$25 Par Bonds – A Questionable Value Proposition

There are many reasons that an investor may employ a professional bond manager. One of the most important considerations when working with a professional bond manager is its access to institutional trading desks and its ability to purchase bonds at a fair or attractive price. Many investors are aware that equities are exchange traded, which allows investors to easily buy or sell equity securities with relatively low transaction costs.

Drawdowns 2018

With markets focused on the actions of the Federal Reserve, many investors have chosen income producing investments that are less sensitive to interest rate movements. Though these asset classes are less correlated with the actions of the Fed, they bring a risk profile all their own in periods of market stress.

Dalbar Study 2020

Financial professionals not only need to be effective investors but also behavioral finance coaches for their clients. When markets draw down or are volatile, questions will arise from concerned clients and perspective will need to be provided. Since 1994 DALBAR has published their annual Quantitative Analysis of Investor Behavior report to help Financial Professionals discuss the prudence of a long-term, buy and hold approach.

Bigger Isn’t Always Better in Bonds

It may no longer be true that “bigger is better” when picking a corporate bond manager. After the financial crisis, reforms to cut global risks have changed some basic features of the corporate bond market. Bond market volumes are healthy and exceed levels of 2007, but the average bond transaction is 40% smaller today.

All Bank Loans are not Created Equal

As a Corporate Bond Manager we often receive inquiries regarding our thoughts on the Bank Loan Market especially in the current interest rate environment where the 10-year US Treasury Bond yield has increased 1% over the last 9 months. We believe that the asset class may warrant a place in an investor’s asset allocation and complement other credit sectors such as Investment Grade Corporates and High Yield but we suggest exercising caution, as all loans are not created equal.

Bond Laddering vs. Single Maturity Investing

It is common for individual fixed income investors to construct portfolios utilizing a “ladder” strategy, purchasing bonds over a specific time frame, 5 or 10 years for example, and in equal installments – an issue coming due each calendar year. This approach is fairly straight forward; however, we find that investors pursuing this type of strategy give up potential return.

Whitepapers

Selected topics that may impact our client community are selected for deeper research and posted here.