CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$6.5 billion and year to date flows stand at -$8.3 billion.  New issuance for the week was nil and year to date issuance is at $31.0 billion.

(Bloomberg)  High Yield Market Highlights

• US junk bonds are headed toward the biggest monthly loss since September as investors pull back on renewed speculation that the Federal Reserve will hold interest rates high all year to drag down inflation. US junk bond investors pulled more than $6 billion from US high-yield funds for week, the third biggest weekly withdrawal on record and the second straight outflow. Yields are up by 51bps this month to 8.65%, the biggest jump since September.
• The moves reverse what had been a strong start to the year and were spurred as a series of Fed officials lined up day after day to reiterate that interest rates need to move higher for longer than the market was pricing in at the start of the year.
• But the market’s downturn paused on Thursday, when yields dropped the most in three weeks and the junk bond index posted the biggest one-day gains in three weeks, with returns of 0.58%.
• That came after the FOMC minutes from the February meeting signaled that central bank policy makers aren’t likely to step up the pace of its hikes.

(Bloomberg)  Fed Inclined Toward More Hikes to Curb Inflation, Minutes Show

• Federal Reserve officials continued to anticipate further increases in borrowing costs would be necessary to bring inflation down to their 2% target when they met earlier this month, though almost all supported a step down in the pace of hikes.
• “Participants observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2%, which was likely to take some time,” according to the minutes of the Jan. 31-Feb. 1 gathering released in Washington on Wednesday.
• The minutes also said “almost all” officials agreed it was appropriate to raise interest rates by 25 basis points at the meeting, while “a few” favored or could have supported a bigger 50 basis-point hike.
• US central bankers raised interest rates by a quarter-point, moderating their action after a half-point hike in December and four consecutive jumbo-sized 75 basis-point increases. The move lifted the benchmark policy rate into a range of 4.5% to 4.75%. Both Chair Jerome Powell and the minutes indicated that officials are prepared to raise rates further to produce a broader slowdown in the economy that tamps down inflation.
• “Participants generally noted that upside risks to the inflation outlook remained a key factor shaping the policy outlook, and that maintaining a restrictive policy stance until inflation is clearly on a path toward 2% is appropriate from a risk-management perspective,” the minutes said. A number of officials said that an “insufficiently restrictive” policy stance could stall recent progress on moderating inflation pressures, according to the minutes.
• Following the release of the minutes, swaps traders kept steady their conviction that the Fed will keep pushing rates higher, with the market indicating that 25 basis-point hikes are likely coming at the March, May and June meetings. Investors lifted expectations for where rates will peak to around 5.36%.

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.