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 loss for the second consecutive week as investors pull $4.1 billion from US junk bonds for the second-biggest such withdrawal of the year on renewed concerns about recession.
• Yields surged and spreads widened across ratings for the second consecutive week, ending a rally that began in July and extended to the first two weeks of August.
• Junk bond yields rose 20bps this week to near 8%. Spreads widened 14bps to +446.
• BBs, the most rate-sensitive in the junk bond market, are moving toward a big loss in August, with month-to-date losses at 1.15% for the worst performing asset in the US high-yield market.
• BBs are on track to end with losses for the second straight week.
• CCC spreads have steadily climbed back to distressed levels widening 52bps week-to-date to +975. The index is also expected to end the week in red, with week-to-date losses at 0.78%.

(Bloomberg)  Powell Says History Warns Against Prematurely Loosening Policy

• Federal Reserve Chair Jerome Powell signaled the US central bank is likely to keep raising interest rates and leave them elevated for a while to stamp out inflation, and he pushed back against any idea that the Fed would soon reverse course.
• “Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell said Friday in remarks prepared for the Kansas City Fed’s annual policy forum in Jackson Hole, Wyoming. “The historical record cautions strongly against prematurely loosening policy.”
• He said restoring inflation to the 2% target is the central bank’s “overarching focus right now” even though consumers and businesses will feel economic pain. He reiterated that another “unusually large” increase in the benchmark lending rate could be appropriate when officials gather next month, though he stopped short of committing to one.
• “Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook,” he said.
• “Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance,” Powell said.
• Other Fed speakers in recent days have also pushed back against expectations, priced into futures markets, that the Fed would raise rapidly to a restrictive policy stance and then begin to ease.
• Restoring price stability will require a “sustained” period of below-trend growth and a weaker labor market, Powell said. “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” he said.
• Inflation according to the Fed’s preferred measure rose 6.3% for the 12-month period ending July, according to a government report released earlier on Friday , while the core measure minus food and energy rose 4.6%.
• “While the lower inflation readings for July are welcome, a single month’s improvement falls far short of what the committee will need to see before we are confident that inflation is moving down,” the Fed chief told the audience.
• “We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%.”
• Fed officials in June projected rates rising to 3.4% by the end of this year, according to their median estimate, and 3.8% by end 2023. They will update those forecasts in September.

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.