CAM Investment Grade Weekly Insights

Credit spreads were a touch wider on the week.  The Bloomberg US Corporate Bond Index closed at 91 on Thursday July 18 after closing the week prior at 89.  The 10yr Treasury yield was slightly higher on the week, trading at 4.24% this Friday morning after closing last week at 4.18%. Through Thursday, the corporate bond index YTD total return was +1.14% while the yield-to-maturity for the benchmark was 5.26%.

Economics

It was a lighter week for economic data.  The only print that was especially meaningful was retail sales on Tuesday which came in better than expected.  However, a closer look does show some spending components are slowing, especially for consumers at the lower end of the income distribution.  Still, it remains difficult to bet against the U.S. consumer which has continued to defy expectations for most of the past few years.  Next week brings plenty of action with big economic releases in GDP, consumption, durable goods, income/spending and PCE to name a few.  Earnings start to ramp next week with 192 IG-rated companies reporting with a further 256 reporting the ensuing week.  The Fed meets at the end of the month and the market has coalesced around the idea of a pause in July and a cut in September.  The Fed does not meet in August.

Issuance

It was a much busier week than expected in the investment grade primary market as companies sold almost $45bln of new debt.  The top of end of the forecasted range was just $30bln.  The banking sector led the way this week as those firms were eager to issue debt on the back of solid earnings.  Money center banks issued $24.5bln and regionals issued more than $6bln.  Next week is the last decent issuance-window for a few weeks and syndicate desks are looking for $35bln in new supply.  Year-to-date issuance has now topped $934bln which is more than +26% ahead of where things stood at this point last year.

Flows

According to LSEG Lipper, for the week ended July 17, investment-grade bond funds reported a net inflow of +$1.3bln.  Short and intermediate investment-grade bond funds have seen positive flows 25 of the past 29 weeks.  YTD flows into IG stand at +$39.9bln.

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.