Category: Insight

(Bloomberg)  High Yield Market Highlights

• US junk bonds are headed for modest weekly gains for the third consecutive week after climbing for six sessions in row. The gains come after a string of data showed a resilient economy and that was reinforced after Federal Reserve Chair Jerome Powell said the economy is “in remarkably good shape,” adding growth has been stronger than previously believed.
• The gains, though modest, cut across ratings, as equities rallied on expectations of lower taxes and lighter regulations after Trump’s nomination to head the Treasury and the Securities Exchange Commission.
• The demand for all-in yield, a key driver for spread compression in 2025, should be sustained into 2025, wrote Barclays strategists Brad Rogoff and Dominique Toublan on Friday. Although some widening from current tight levels may be expected, especially in the second half of the year, strong technicals and a defensive index composition should keep high-yield spreads contained, Rogoff and Toublan added
• Supported by attractive all-in yields, anticipated rate cuts, rotation from money markets and rebalancing from equities should keep demand strong for credit in 2025, Barclays wrote
• Junk bond yields declined six basis points so far this week and are on track for third weekly drop. Spreads tightened five basis points in the last four sessions
• The broad gains in the US junk bond market were also partly due to light primary calendar
• The week has priced about $5b so far after a light November. November priced $9b to make it the slowest month for supply since July 2023
• Thursday was the busiest day since Oct. 24 pricing $2.4b.
• Light supply is also driving big demand for new issues as investors look for paper to put money to work
• The calendar remains light, with just one deal on deck
• BB yields fell four basis points in the last four sessions and is set for third weekly decline, should this trend hold
• Single B yields closed at 7% and spreads unchanged at 248. Single Bs are also poised to notch up gains for the third week in a row

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.

(Bloomberg)  High Yield Market Highlights

• US junk bonds are set to cautiously rebound from last week’s losses after notching up gains for four sessions in a row. The market has reconciled to a slower pace of Federal Reserve interest rate cuts against the backdrop of steady growth and resilient labor market.
• Junk bonds rebounded across ratings, led by CCCs, the riskiest part of the high yield market. CCC yields plunged to a new low of 9.82%, the lowest since April 2022 and falling 25 basis points in four days. The risk premium for CCCs tumbled to 523 basis points, a three-year low, as spreads tightened for four consecutive sessions.
• CCCs are on track to be best performing asset class, with gains of 0.47% so far this week after rallying for four straight sessions.
• Tightening spreads, attractive yields, steady growth against the backdrop of easing interest-rates kept the primary markets busy, with eight companies together selling $4b in new bonds. The November tally is nearly $9b
• The broader index yields dropped six basis points this week so far to close at 7.23%. Spreads closed at 258 basis points, down eight basis points for the week
• The post-Thanksgiving period tends to be positive for risk assets, with spreads tightening in ten of the past fourteen years, Barclays strategists Brad Rogoff and Dominique Toublan wrote Friday. They expect similar performance this year. But tight starting spreads, elevated complacency, and some soft spots in earnings could limit the upside, they warn
• Though the momentum of the post-election rally faded, the slow but steady rebound this week on renewed expectations of less stringent regulations and lower taxes bolstered risk appetite, drawing high-risk pay-in-kind bonds in the primary market from RR Donnelley, commercial printing service provider.

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.

(Bloomberg)  High Yield Market Highlights

• The US junk bond market halted the post-election rally and recorded losses for three straight sessions as yields jumped nine basis this week to 7.21%. The market is on track to end a two-week rally, with the week-to-date loss at 0.16%.
• The rally lost further momentum after Chair Jerome Powell suggested that the Federal Reserve is in “ no hurry to lower rates.” The US economic performance has been “remarkably good,” he said, signaling that the central bank had enough room to lower rates at a careful pace.
• This came after data showed a measure of US inflation remained firm in October, highlighting the risks the central bank faces in bringing prices under control
• Inflation data was followed by producer prices on Thursday. The US producer price index rose in October, signaling pressure in Fed’s favored gauge – the core PCE
• The losses in the US junk bond market spanned across ratings. CCC yields climbed 12 basis points to 10% in three sessions this week, driving a loss of 0.02% on Thursday. CCCs are set to close the week flat
• BB yields rose eight basis points 6.15% pushing a loss of 0.03% on Thursday. BBs are set to close the week with losses of 0.19%
• Risk assets took a breather from the broad post-election rally this week, Brad Rogoff and Dominique Toublan wrote on Thursday. With few data points left and limited days for more supply, spreads can still grind tighter through year-end, despite being near 30-year lows, Rogoff and Toublan wrote
• The losses in risk accelerated with Powell’s warnings coming after several Fed officials on Wednesday suggested that there was lack of clarity on the pace of easing and the appropriate level
• “While now is the time to begin dialing back the restrictiveness of monetary policy, it remains to be seen how much further interest rates will decline or where they might eventually settle,” Kansas City Fed President Jeff Schmid said in a speech at an energy conference co-hosted by the Kansas City and Dallas reserve banks
• Uncertainty about the neutral rate has also risen, perhaps because the structural changes in the economy are “relatively recent and will take time to fully assess,” Dallas Fed President Lorie Logan said in separate remarks at the same conference
• Junk bond yields and returns also came under pressure this week because US borrowers rushed to the market after a quick and clear election outcome
• Eight borrowers sold more than $4b this week

(Bloomberg)  Powell Says It’s Smart to Go Slowly on Fed Easing If Data Allow

• Federal Reserve Chair Jerome Powell said officials may slow the pace of interest-rate cuts as they approach the so-called neutral rate — a setting that neither slows nor stimulates growth.
• The economy is doing very well and that is a great thing, Powell said Thursday during a Q&A session following a speech in Dallas.
• “I think in this situation, what it calls for is us to be careful, move carefully, and as we sort of reach the range or get near the plausible range of neutral levels, it may be the case that we slow the pace of what we’re doing just to increase the chances that we get this right,” Powell said.
• Powell said it would be smart to proceed slowly with lowering borrowing costs if the economic data allow.
• US central bankers began lowering borrowing costs in September with an aggressive half-percentage-point cut, and then lowered the policy rate again by a quarter point last week. They’ve signaled a willingness to cut rates further so long as inflation continues to slow. Powell’s remarks appear in line with some of his other colleagues who are advocating a go-slow approach to future rate reductions.

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.

(Bloomberg)  High Yield Market Highlights

• US junk bonds are headed for their second weekly gain after rallying for five straight sessions since Donald Trump won the presidency and Republicans regained control of the Senate. Yields tumbled to a three-week low and are on track for their second weekly decline. Spreads tighten for the fourth consecutive week and hover near a three-year low of 265 basis points.
• The gains spanned all risk assets, with equities set for their best week in 2024. S&P 500 notched its 49th record this year sparking a rally across all assets and the VIX index is on track for the biggest weekly decline in three years. CCCs, the riskiest segment of the junk bond market, rose for five sessions in a row and are set to record their second weekly gain.
• The broad rally rolled on uninterrupted after the Federal Reserve cut interest-rate by 25 basis points to 4.5%-4.75% as widely expected. The expectations are that the central bank will cut by 25 basis points in the December meeting
• CCC spreads closed at 548 basis points, just 5 basis points above the 33-month low of 543. CCC yields fell below 10% again on Thursday to close at 9.94%, the lowest since April, 2022. Yields were down 10 basis points week-to-date
• BB spreads are set for their fourth weekly drop after closing at 163. BBs are poised to end their two-week losing streak with gains of 0.4% so far
• Single B spreads closed unchanged at 253 basis points, the lowest since the Great Financial Crisis, and yields fell nine basis points to 7.11% driving gains for five days in a row
• We expect tighter spreads and compression in the short term, given structurally higher yields, Brad Rogoff and Dominique Toublan wrote this morning. The election’s swift results eased markets’ worst fears and have spurred a widespread risk-on sentiment, they added
• The broad rally in risk assets is spurred by expectations that the Republican administration will be less aggressive with anti-trust laws and regulations. The market also expects lower taxes across the board
• A clear outcome in the US presidential election ended uncertainty and volatility and reopened the primary market, though cautiously

(Bloomberg) Key Takeaways From Fed Decision to Cut Rate by Quarter Point

• Federal Open Market Committee votes unanimously to lower benchmark rate by 25 basis points to target range of 4.5%-4.75%
• Fed tweaks language to note “labor market conditions have generally eased,” and repeats “the unemployment rate has moved up but remains low”
• Statement removes reference to “further” inflation progress, noting inflation “has made progress toward the committee’s 2% objective but remains somewhat elevated”
• Statement removes language saying committee has “gained greater confidence” that inflation is moving sustainably toward 2% target
• Statement maintains language saying risks to achieving employment and inflation goals “are roughly in balance”

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.

(Bloomberg)  High Yield Market Highlights

• US junk bond yields surged to a near-three-month high as the first month of the fourth quarter came to a close amid uncertainty over the path of the interest-rate policy after a string of better-than-expected economic data in October. Yields jumped 34 basis points in October, the most in six months, driving the worst monthly returns since April.
• However, CCCs, the riskiest part of the junk bond market, rallied to rack up gains for the sixth month in a row, spurred by strong economic data. Yields tumbled 26 basis points to 10.10%, just three basis points above the 30-month low. CCCs are the best performing asset class in the US fixed-income market.
• Spreads have been resilient despite volatility as higher yields fuel strong demand, Brad Rogoff and Dominique Toublan wrote this morning
• While recent macro developments have been positive, upcoming catalysts such as the labor report, US elections, and the FOMC meeting may test a credit market, they wrote
• BBs, the better-quality credit and most rate-sensitive within the high yield universe, were the worst performers in October, with a loss 0.92%. BB yields climbed to a more than three-month high of 6.24%, up 41 basis points for the month, the most since April
• Rising yields were also partly due to a surge in supply in the junk bond market
• Tight spreads and attractive yields pulled borrowers into the market in October taking the month’s supply to $24b. It was the busiest October since 2021
• Out of the more than 25 borrowers in the market, two used proceeds to fund leveraged buyouts, one funded a dividend payment and two closed strategic acquisitions
• CCCs accounted for about 19% of the total volume
• One-third of the supply came from BBs

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.