Category: High Yield Weekly

(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.

(Bloomberg)  High Yield Market Highlights

• US junk bonds are headed for their biggest weekly loss in six months as yields surge alongside rise in Treasury yields and 9% loss in equities so far this week. Yields advanced in three of the last four sessions to close at 7.31%, up 15 basis points in four sessions.
• Although the broad market recovered modestly on Thursday from the three-day losing streak, it’s on track to register losses across ratings. CCCs are set to post their first weekly loss in more than three months and the biggest since the week ended June 28.
• The losses, while partly caused by expectations that the Federal Reserve will have a more measured approach on rate cuts, are also due to a sudden surge in new bond sales. Ten borrowers sold more than $6b this week, the second busiest week this month
• Strong economic data, together with easing interest-rate policy, pulled borrowers into the market both for refinancing and funding acquisitions
• Four more borrowers sold $3.5b on Thursday and two of the four funded leveraged buyouts
• Month to date issuance is over $20b

(Bloomberg)  Treasuries Plunge Like It’s 1995 as Traders See Soft Landing

• The last time US government bonds sold off this much as the Federal Reserve started cutting interest rates, Alan Greenspan was orchestrating a rare soft landing.
• Two-year yields have climbed 34 basis points since the Fed reduced rates on Sept. 18 for the first time since 2020. Yields rose similarly in 1995, when the Fed — led by Greenspan — managed to cool the economy without causing a recession. In prior rate cutting cycles going back to 1989, two-year yields on average fell 15 basis points one month after the Fed started slashing rates.
• Rising yields “reflect the reduced probability of recession risks,” said Steven Zeng, an interest rate strategist at Deutsche Bank AG. “Data has come in pretty strong. The Fed may slow the pace of rate cuts.”
• The latest backup in yields shows how a resilient US economy and buoyant financial markets limit the options for Fed Chair Jerome Powell to aggressively lower rates. Interest swaps show traders are expecting the Fed to lower rates by 128 basis points through September 2025, compared with 195 basis points priced in about a month ago.
• Global bonds have been sliding this week as investors weigh the potential of slower rate reductions.
• The selloff extended slightly on Tuesday, pushing the 10-year yield up about one basis point after an increase of 11 basis points on Monday. The recent rise has brought the yield on the benchmark to around 4.2%, up from a 15-month low of 3.6% on Sept. 17 — one day before the Fed lowered borrowing costs by half a point.
• On Tuesday, trading activities suggested that sentiment remains bearish, with a series of sales of block trades in 10-year note futures. In the options market, one trade targets the 10-year yields rising to about 4.75% by the option expiry on Nov. 22.
• In 1995, the Fed slashed interest rates just three times — from 6% to 5.25% — in six months, after lifting them sharply. Yields on 10-year notes jumped more than 100 basis points 12 months later after the first cut that year, while two-year yields rose 90 basis points.
• Currently, volatility has also picked up. The ICE BofA Move Index, which tracks expected swings in Treasuries in the coming month, has climbed to the highest level this year.

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 a first weekly gain in three, propelled by CCCs, the riskiest part of the high-yield market, after strong economic data underlined the resilience of the economy.
• A string of recent reports showed robust retail sales, expanding services activity and a strong jobs market, easing concerns of a recession that would lead to a strong of corporate defaults.
• CCCs are poised to record gains for the 16th consecutive week, the longest streak since March 2017. They rallied for five straight sessions this week, bucking the broader trend
• CCC spreads dropped to 591 basis points, the lowest since February 2022. They tightened 21 basis points week-to-date and are on track for a seventh weekly decline
• CCC yields plunged to 10.17%, the lowest since April 2022. They are down 18 basis points so far this week
• BBs are also set to close the week with modest gains, the first in three weeks, though they posted small losses on Thursday after three-day rally
• Single Bs are also headed for a first gain in three weeks
• Credit markets traded well this week amid favorable supply-demand technicals and supportive macro data, Brad Rogoff and Dominique Toublan of Barclays wrote in a note Friday
• The broad and steady rally amid a resilient economy and easing interest-rate policy spurred strong risk appetite, driving capital-market activity and moving October volume to almost $14b

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 kick off the fourth quarter on a somber note and are on track to end the eight-week gaining streak to post their biggest weekly loss in four months. The US junk bond rally faded as the market posted losses for the second consecutive session on Thursday.
• The broad rally petered out amid growing tensions in the Middle East and because data showed US services activity expanded at the fastest pace since February 2023. That damped hopes for a big rate cut in November.
• The losses this week spanned across ratings in the US high-yield market. BBs are also headed for their first weekly loss in nine and the biggest since early May
• US junk bond yields climbed to a two-week high of 7.06% after steadily rising for four straight sessions this week. This will be the first increase in nine weeks
• BB yields also rose seven basis points in four sessions to 5.89%, a more than two week high
• CCCs also recorded losses for two sessions in a row and are poised to close the week unchanged. Yields, though, have dropped further to a new 29-month low of 10.31%. Spreads closed at a new 30-month low of 629 basis points
• While the broad rally took a pause, still-attractive yields and tight spreads against the backdrop of resilient economy and easing monetary policy pulled borrowers into the US junk bond market
• After a brief respite from the supply deluge in September, five borrowers sold near $5b in the primary market this week
• Appetite for credit remained strong despite tight valuations, lower yields and elevated supply, Barclays strategists Brad Rogoff and Dominique Toublan wrote on Friday

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 rebounded cautiously after a four-day losing streak as spreads dropped just below 300 basis points and yields held steady at 7.03%.
• Junk bond yields, prices and returns came under pressure after a barrage of new issuance took the week’s volume to $9b and September supply to more than $34b. The month’s supply is up 44% year-over-year
• 17 borrowers, the most since May, jumped into the market to sell $9b this week
• The primary market was spurred by a half percentage-point cut in interest rates by the Federal Reserve.
• Investors, still hungry for new paper, continued to flock to new issues
• Barclays strategists Bradley Rogoff and Dominique Toublan expect to see attractive opportunities across the investment grade and high yield market despite tighter valuations after the beginning of the rate- cutting cycle in the US and Europe
• The market rebounded on Thursday across the rating spectrum, ending the four-day decline
• Barclays strategists Rogoff, Andrew Johnson and Corry Short expect CCCs to outperform through the year-end. Historically, when CCCs outperform through the third quarter, they tend to continue that trend through the year-end, they wrote on Friday

(Bloomberg)  Fed’s Favored Inflation Gauge, Consumer Spending Barely Rise

• The Federal Reserve’s preferred measure of underlying US inflation and household spending rose modestly in August, underscoring a cooling economy.
• The so-called core personal consumption expenditures price index, which excludes volatile food and energy items, increased 0.1% from July, according to Bureau of Economic Analysis data out Friday. On a three-month annualized basis, the measure rose 2.1%, in line with the central bank’s target.
• Spending also rose 0.1% after adjusting for inflation. Nominal personal income increased 0.2% and the saving rate eased to 4.8%.
• Treasury yields and the dollar fell on expectations the figures will keep the Fed on track for more rate cuts in the coming months while fueling ongoing debate over how big the reductions should be. The central bank opted for an outsize half-point cut this month to kick off its easing cycle, and investors are split over whether it will take a similar step or opt for a smaller move in November, according to futures.
• “The modest rise in consumer inflation in August on its own provides strong reason for the Fed to continue easing the still restrictive monetary policy stance,” Kathy Bostjancic, chief economist at Nationwide, said in a note. “The tepid 0.1% rise in real consumer spending in August underscores that consumers are becoming more frugal in their spending and that the momentum in spending is slowing.”
• Details of the August inflation numbers showed a broad cooling. Services prices excluding housing and energy rose 0.2% for a second month. Goods prices minus food and energy declined 0.2%, the most in three months.
• The spending data also points to an economy that’s gradually slowing this year. Overall services spending, which makes up the bulk of household consumption, rose 0.2% in August, marking the smallest three-month gain since October 2023. Goods spending was unchanged following a solid advance in July.
• Wages and salaries rose by the most since May. Still, growth in overall disposable income slowed, restrained by declines in proprietors’ income, interest income and dividend income.
• Separate data published Friday by the Census Bureau showed the advance goods trade deficit narrowed in August to $94.3 billion — the least since March — while growth in wholesale and retail inventories moderated. Results of a Bloomberg survey showed forecasters expect inflation to return to the Fed’s 2% target by early next year.
• Friday’s data follow annual revisions to gross domestic product data published Thursday by the BEA, which showed faster economic growth and more saving — fueled by higher incomes — than previously reported in 2022 and 2023.
• The Bureau of Labor Statistics will provide a monthly update on hiring and unemployment for September on Oct. 4.

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 seventh weekly gain after amassing the biggest one-day returns in six weeks. The market is poised for the biggest weekly jump in four months, with returns of 0.86% so far this week.
• Yields plunged, falling below 7% for the first time since April 2022, after Fed Chair Jerome Powell made an aggressive start to easing by lowering the interest rate by a half percentage point aimed at bolstering the US labor market.
• The broad gains spanned across the US high yield market on expectations that the Federal Reserve will be able to engineer a soft landing. After the 50 basis point cut this week, Bank of America economists expect another 75 basis points cuts in the fourth quarter.
• Also, Chair Powell instilled confidence in markets claiming that the aggressive 50 basis point cut was just “recalibration” and was not a sign of fundamental deterioration, Brad Rogoff and Dominique Toublan wrote on Friday.
• CCCs, the riskiest tier of the US junk bond market, is on track for a 12th week of gains, the longest rallying streak since January 2021. The week-to-date returns are 1.84%, the most in a week in 2024, after notching up gains for 12 days in a row.
• CCC yields tumbled 16 basis points on Friday to 10.51%, the lowest since May 2022, and is on course for a third week of declines after dropping 43 basis points this week.
• CCC spreads tightened for the ninth consecutive session to 664, the longest tightening stretch in 20 months.
• BB yields dropped to a new 27-month low and closed at 5.79%. Spreads closed at 183.
• Primary activity gained new momentum as the soft landing narrative gained market credence against the backdrop of falling inflation and easing interest-rates.
• The market has seen a flurry of new deals, bringing the September tally to $24b, up 34% already over last September and there one full week to go.

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 sixth straight week of gains, and yields still hover around two-year lows on expectations that the Federal Reserve will begin easing interest-rate policy in its meeting next week. Expectations swing between a 25 and a 50 basis point cut.
• The gains spanned across ratings in the US high yield market, led by CCCs, the riskiest segment of the market. CCCs are on track for their 11th week of gains, the longest winning streak in more than three years, after rallying for seven sessions in a row. CCC yields are at 11.07%, the lowest since May 2022.
• Expectations of easing monetary policy, combined with hopes of a soft landing, pulled US borrowers into the market. The primary market was crowded with 15 borrowers selling more than $11b this week, the busiest in four months. The busiest week this year is the week ended May 10 when the market priced $13b in new bonds
• 26 issuers sold bonds in the first two weeks of the month driving the September tally to $19b. The month already accounts for about 80% of last September’s volume
• The broad gains across risk assets pushed junk bond gains across ratings
• BB yields held steady at 6%. BBs are also set for their sixth weekly gains after rallying in two of the last four sessions
• With demand for all-in yield remaining robust and fundamentals appearing solid, any widening in yields will be met with buyers, keeping spreads range-bound, Brad Rogoff and Dominique Toublan wrote on Friday
• Fundamentals still look fine, with leverage in better shape than pre-COVID, Rogoff and others wrote

(Bloomberg)  Core US Inflation Picks Up, Damping Odds of Outsize Fed Cut

• Underlying US inflation unexpectedly picked up in August on higher prices for housing and travel, undercutting the chances of an outsize Federal Reserve interest-rate cut next week.
• The so-called core consumer price index — which excludes food and energy costs — increased 0.3% from July, the most in four months, and 3.2% from a year ago, Bureau of Labor Statistics figures showed Wednesday.
• Economists see the core gauge as a better indicator of underlying inflation than the overall CPI. That measure climbed 0.2% from the prior month and 2.5% from a year ago in August, marking the fifth straight month the annual measure has eased and dragged down by cheaper gasoline prices.
• The BLS said shelter was “the main factor” in the overall advance.
• While Wednesday’s reading won’t deter the Fed from cutting interest rates next week, it reduces the chance of an outsize reduction. Even so, policymakers have made it clear that they’re highly focused on softness in the labor market, which is more likely to drive policy discussions and decisions in the months ahead. They’ll also have more data to consider leading up to their November and December meetings.
• In addition to shelter, the advance was boosted by airfares, apparel as well as daycare and preschool. Car insurance costs continued to rise, as did hotel stays.
• Shelter prices, the largest category within services, climbed 0.5%, the most since the start of the year. That marked the second month of acceleration and defied widespread expectations for a downshift. Owners’ equivalent rent — a subset of shelter and the biggest individual component of the CPI — rose at a similar pace.
• Excluding housing and energy, service prices advanced 0.3%, the most since April, according to Bloomberg calculations. While central bankers have stressed the importance of looking at such a metric when assessing the nation’s inflation trajectory, they compute it based on a separate index.
• That measure — known as the personal consumption expenditures price index — doesn’t put as much weight on shelter as the CPI does, partly why it’s trending closer to the Fed’s 2% target.
• The PCE measure, which will be released later this month, draws from the CPI as well as certain categories within the producer price index.
• Central bankers are increasingly paying attention to the labor side of their dual mandate amid emerging cracks in the job market. Hiring over the past three months is at the lowest since mid-2020, while job openings declined and layoffs rose in July. Anecdotally, employers have also indicated they’re becoming more selective in hiring, with some cutting hours and leaving vacancies unfilled.

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.