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 to end the six-week gaining streak after steadily falling for three consecutive sessions, with a week-to-date loss of 0.67%. Yields jump 16bps week-to-date to 7.59%, rising for the first time in seven weeks and the biggest weekly leap since early July after Federal Reserve minutes noted risks from the central bank tightening more than necessary. The losses stretched across the high yield market, with CCCs headed toward its first weekly loss, falling by a modest 0.29% and snapping the four-week rally. The losses followed a three-day decline, the longest losing streak in five weeks.
• CCC yields are headed toward the biggest weekly surge since July 1, rising 28bps week-to-date to 12.51%.
• Junk bond losses accelerated after mixed signals from different FOMC voting members, causing uncertainty over the extent of rate hikes in the coming months and its impact on growth.
• The primary market saw some borrowers rush in a hurry to take advantage of the risk-on move ahead of Jackson Hole symposium next week where the Fed could reiterate that it was focused on taming inflation and the fight against inflation continues.
• The issuance volume this week totals almost $5b, the busiest since early June.
• The month-to-date supply tally was at a modest $8b, the slowest August since 2014.
• The junk bond market may extend the decline on Friday amid a broader risk-off move. U.S. equity futures sank with Treasuries after a chorus of Federal Reserve officials reiterated their resolve to continue rate hikes and traders raised tightening wagers for other major central banks.

(Bloomberg)  Fed Officials Offer Mixed Signals on Size of September Rate Hike

• U.S. central bankers offered divergent signals over the size of the next interest-rate hike, with St. Louis’s James Bullard urging another 75 basis-point move while Kansas City’s Esther George struck a more cautious tone.
• Bullard, who is one of the most hawkish policy makers at the U.S. central bank, told the Wall Street Journal in an interview published Thursday that he favored going big again, arguing “we should continue to move expeditiously to a level of the policy rate that will put significant downward pressure on inflation.”
• “I don’t really see why you want to drag out interest rate increases into next year,” he said.
• The Fed in July raised the target range for its benchmark rate by three-quarters of a percentage point to 2.25% to 2.5%, following a similar-sized hike in June to cool the hottest inflation in 40 years. Officials have since signaled that either 50, or another 75 basis points, were on the table for their Sept. 20-21 meeting, depending on the data. They get fresh monthly readings on inflation and employment between now and then.
• Both Bullard and George are voters this year on the rate-setting Federal Open Market Committee. But George, who hosts the Fed’s annual policy retreat next week in Jackson Hole, Wyoming, has sounded more dovish than Bullard in recent months, after many years of being viewed as a hawk.
• She backed the July hike but dissented in June in favor of a smaller half-point increase, citing concern the larger move could stoke policy uncertainty. Her remarks Thursday continued to tilt dovish.
• “I think the case for continuing to raise rates remains strong. The question of how fast that has to happen is something my colleagues and I will continue to debate, but I think the direction is pretty clear,” she said in Independence, Missouri.
• “We have done a lot, and I think we have to be very mindful that our policy decisions often operate on a lag. We have to watch carefully how that’s coming through.”
• George also noted that the Fed was shrinking its $8.9 trillion balance sheet while raising rates, which would also help to restrain the economy. The pace of decline steps up next month to an annual pace of around $1 trillion.
• Fed officials who have spoken since the July meeting have pushed back against any perception that they’d be pivoting away from tightening any time soon. They’ve made it clear that curbing the hottest inflation in four decades is their top priority.

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.