Category: High Yield Weekly

(Bloomberg)  High Yield Market Highlights

• The US junk bond market is headed toward the third week of gains largely propelled by the riskiest part of the junk market even after the Federal Reserve left the door open for future hikes. The CCC segment is on track for the biggest weekly gains since mid-April at 1.2%.  Easing concerns about an imminent recession after Fed revised the growth forecast for 2023 to 1% — up from the March projection of 0.4% — pushed CCC yields to a four-month low of 12.84% after steadily declining for seven sessions in a row. That’s the longest falling streak since mid-January. CCC spreads also dropped to a four-month nadir of 859 basis points after falling for three consecutive sessions.
• US junk bonds rallied across the board. Yields tumbled to a six-week low of 8.53%. Spreads closed at 408 basis points.
• BB yields fell to a two-week low of 7.05% and single-Bs to a six- week low of 8.74%.
• BBs extended gains for the third straight session, with week-to-date returns at 0.28%. Single Bs rallied for six sessions in a row and are on track post gains for the third consecutive week, with week-to-date returns at 0.42%.

(Bloomberg)  JPMorgan’s Michele Says Exit ‘Cash Trap’ for Bonds on Rate Call

• It’s time to exit the “cash trap” of money market funds and move into bonds as the Federal Reserve is set to pause its rate-hike campaign and then cut as soon as September, according to Wall Street veteran Bob Michele.
• “If we are right and we’ve seen the last Fed rate hike and the market starts pricing in rate cuts and they start cutting rates, then those cash returns will start to evaporate,” Michele told Bloomberg Television’s The Open on Wednesday. With a switch to bonds, “you will have locked in not only the carry but will also get some capital appreciation,” he said.
• The chief investment officer for global fixed income at JPMorgan Investment Management Inc., who has previously recommended five-year Treasuries and US investment-grade corporate bonds, said the central bank is set to hold rates “where they are” when its policy-setting committee meets on Wednesday. Michele sees the US economy entering a recession within a year as unemployment rises.
• “Unemployment at 4.5% is recession, I don’t think there’s ever been a jump of 1.1% in unemployment and the NBER (National Bureau of Economic Research) hasn’t come in and said we’re in recession,” Michele said. “So the Fed is predicting recession there.”
• Price pressures haunting the Fed will continue to fade, according to Michele, who sees the disinflationary trend as “intact.” Tuesday’s consumer price index report showed inflation decelerating, followed by US producer prices declining in May, bolstering expectations that the Fed will be on hold this month.
• The market for wagers on the outlook for central bank policy shows traders now expect the benchmark rate to peak in September, instead of July.
• “We have never gone from the last rate hike to recession without the Fed cutting rates before then,” Michele said. “If everything we are seeing is telling us a recession by year-end, I am still sticking with September as the first rate cut.”

(Bloomberg)  Powell Says Nearly All Officials Expect ‘Some’ Further Fed Hikes

• Federal Reserve officials paused on Wednesday following 15 months of interest-rate hikes but signaled they would likely resume tightening at some point to cool inflation.
• “Holding the target range steady at this meeting allows the committee to assess additional information and its implications for monetary policy,” the Federal Open Market Committee said in a statement released in Washington Wednesday.
• The decision left the benchmark federal funds rate in a target range of 5% to 5.25%.
• The FOMC vote was unanimous. Of the 18 policymakers, 12 penciled in rates at or above the median range of 5.5% to 5.75%, showing most policymakers agree further tightening is needed to contain price pressures. The forecasts imply officials expect two additional quarter-point rate hikes or one half-point increase before the end of the year.
• Chair Jerome Powell said nearly all Fed officials expect it will be appropriate to raise interest rates “somewhat further” in 2023 to bring down inflation. He declined to say whether another hike could come as soon as July.
• “Inflation pressures continue to run high and the process of getting inflation back down to 2% has a long way to go,” Powell said at a post-meeting press conference.
• The committee “judged it prudent” to hold rates steady this month given how quickly rates have risen, he added, saying the pause is a continuation of the moderating pace of policy measures.
• “We’ve covered a lot of ground and the full effects of our tightening have yet to be felt,” the Fed chief said.

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 heading for a modest weekly gain as investors debate whether the Federal Reserve will pause its tightening campaign or keep rates higher for longer following the example of the Bank of Canada.
• Signs of bullish sentiment can be seen as US high yield funds reported a cash haul of $2.5b for week ended June 7, according to Refinitiv Lipper, marking a U-turn after investors pulled $4.7b in four of the five weeks in May.
• The week-to-date gains are 0.16%.
• Yields rose seven basis points week-to-date to 8.61% and rose in two the last four sessions after dropping for two consecutive weeks.
• While the high yield market slowed down a tad this week, CCCs outperformed BBs and single Bs, with week-to-date returns of 0.73% compared to a loss of 0.1% and a gain of 0.3% in BBs and single Bs, respectively.
• CCC yields dropped 6 bps on Thursday to close at 13.22%. Yields fell in two of the last four sessions.
• CCCs have been some of the best performing assets in the US corporate debt market this year, with year-to-date returns of 7.62% compared with 2.59% in investment grade, and BBBs in particular, with 2.76%.
• Risk assets have rallied materially in the last couple of weeks on strong technical backdrop, Barclays’s strategists Brad Rogoff and Dominique Toublan wrote this morning. The rally has been helped by a combination of higher yields and lower tail risk expectations, they wrote.
• The primary market priced more than $4b this week as borrowers took advantage of the risk-on sentiment.

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 toward the third straight week of losses and the biggest weekly loss in more than two months, pushing yields to a seven-week high on worries over negotiations to raise the debt ceiling. The week-to-date loss is 0.45%.
• The losses spanned ratings categories. US high yield funds reported an outflow of $1.15b for week ended May 17, the third consecutive week of outflows.
• Yields have risen amid higher inflation expectations and hawkish commentary from Fed officials, while the outlook for economic growth has deteriorated across major developed markets, Barclay’s Brad Rogoff wrote in a note.
• This creates greater uncertainty about the June Fed decision, Rogoff wrote.
• Even as yields rose steadily and nervous investors stayed on the sidelines, the primary market saw a deluge of new issuance, with borrowers rushing to get ahead of any jumps in yields spurred by gridlock in the negotiations to raise the US debt ceiling.
• As US borrowers made a quick dash to the market, the week-to-date tally rose to $3.5b. The month-to-date supply jumped to more than $13b. The year-to-date volume stood at almost $71b.
• CCCs have bucked the overall trend as yields dropped on Thursday to 13.49% and has risen by just 6bps week-to-date versus a 35bps jump single B yields and 17bps in BBs.
• BBs posted losses for six days in a row and are on track to see the biggest weekly decline, with week-to-date losses of 0.54%, the biggest since March 10.

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 junk market snapped the knee-jerk rally that followed the Fed meeting where Chair Jerome Powell said that the central bank was “much closer to the end” of the rate-hike campaign after raising interest rates by a quarter percentage point. US junk bonds posted the biggest one-day loss in seven weeks Thursday following drops in three of the last four sessions. After a frenzy of primary issuance, the asset class is headed for the biggest weekly decline since mid-March. Yields moved to a five-week high of 8.65% with spreads around +489 basis points.
• The high yield market had a lagged response to the collapse and takeover of First Republic Bank and plunging shares of PacWest Bancorp and Western Alliance Bancorp after rounds of trading halts.
• US junk bond borrowers rushed to sell bonds ahead of jobs data and any further volatility in the US regional banking industry rattling the financial stability. The primary market was inundated with new bond sales.
• The market sold more than $5b this week, making it the busiest since early April. The month- to-date supply of $5b surpassed May’s supply of $4b last year in just four sessions.
• The junk bond market losses extended across the rating spectrum on fresh concerns about financial stability.
• BB yields surged to cross the 7% level and close at 7.03%, a five-week high and the biggest one-day jump in seven weeks after rising steadily in three of the last four sessions. BBs also posted the biggest one-day loss since mid-March and is headed toward a weekly loss of 0.76%, the biggest since March 10.
• CCCs continue to be the best performing asset class in the high yield market, with a loss of 0.5% week-to-date versus 0.76% in BBs and 0.78% in single Bs.

(Bloomberg)  Fed Hikes Rates by Quarter Point, Powell Hints at Possible Pause

• The Federal Reserve raised interest rates by a quarter percentage point and hinted it may be the final move in the most aggressive tightening campaign since the 1980s as economic risks mount.
• “The committee will closely monitor incoming information and assess the implications for monetary policy,” the Federal Open Market Committee said in a statement Wednesday. It omitted a line from its previous statement in March that said the committee “anticipates that some additional policy firming may be appropriate.”
• Instead, the FOMC will take into account various factors “in determining the extent to which additional policy firming may be appropriate.”
• “That’s a meaningful change that we’re no longer saying that we anticipate” further increases, Chair Jerome Powell said at a press conference after the decision, when asked whether the statement is a signal that officials are prepared to pause rate increases in June. “So we’ll be driven by incoming data, meeting by meeting, and we’ll approach that question at the June meeting.”
• The increase lifted the Fed’s benchmark federal funds rate to a target range of 5% to 5.25%, the highest level since 2007, up from nearly zero early last year. The vote was unanimous, and Powell said support for the 25 basis-point rate increase was “very strong across the board.”
• Whether that rate will prove to be high enough to bring inflation back to the Fed’s 2% target will be an “ongoing assessment” based on incoming data, Powell said, adding later that Fed officials’ outlook for inflation does not support rate cuts.
• Powell said bank conditions had “broadly improved” since early March, but said the strains in the sector “appear to be resulting in even tighter credit conditions for households and businesses,” following a tightening in credit over the past year.
• “In turn, these tighter credit conditions are likely to weigh on economic activity, hiring and inflation,” he said. “The extent of these effects remains uncertain.”
• Powell said Wednesday it’s possible the US could experience what he hopes would be a mild recession, but “the case of avoiding a recession is in my view more likely than that of having a recession.” Wage increases have been moving down, and job openings have declined but have not been accompanied by rising unemployment, he said.

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 posted to close the month with modest gains, outperforming investment-grade bonds, on expectations the Fed may pause its rate-hike campaign after an anticipated 25bps increase at the next policy meeting. The struggles of First Republic Bank this week reinforced that market consensus. The gains spanned the risk spectrum, propelled by CCCs, the riskiest of junk bonds, with a month-to-date return of 2%, the most since January’s 6.06%. CCCs rebounded from a loss of 1.37% in March.
• The April rally was also partly fueled by cash inflows into US high-yield funds. US junk bond funds reported a cash haul of almost $8b in April as investors returned to the asset class after pulling nearly $7b in March amid turmoil in the banking industry.
• CCCs were the best-performing assets in the US fixed- income market. Yields tumbled 32bps month-to-date to 13.12% while BB yields rose 6bps to 6.86%. The broader junk bond index yield rose 3bps for the month to 8.55%.
• The primary market was revived with a steady stream of borrowers ranging from bankers offloading debt sitting on their books to gaming and travel.
• The year-to-date supply is at $56.5b, up 4.4% year-over-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 set to lose this week by the most in six weeks, ending a month long rally as investors brace for at least one more interest rate hike by the Federal Reserve. Yields in the risky debt jumped by 18 basis points this week to 8.58%, the highest since late March. For traders, the risk is that higher-for-longer rates will expedite recession. An uptick in US jobless claims hinted at some softening in the US labor market, while a gauge of manufacturing activity in the Philadelphia area fell to the lowest level since May 2020.
• Junk bond spreads widened to +454. Spreads rose and the junk bonds posted negative returns in three of the last four sessions.
• The losses in the US junk bond market spanned all ratings. BBs are on track for a weekly loss of 0.58%, the biggest since the week ended March 10. Yields closed Thursday at 6.90%, a three-week high.
• While large cap bank earnings have been fine so far, recent data suggest economic weakness in the manufacturing, Barclays’s Brad Rogoff wrote this morning.
• US high yield funds reported a cash haul of more than $3b for the week ended April 19, a third week of inflows. Two of the past three weeks saw an inflow of more than $3b.
• The US junk bond primary market has seen a steady stream of borrowers.
• Borrowers are rushing in ahead of the next Fed meeting as they wait for some hints on the future path of the monetary policy after a widely expected 25bps hike.
• Month-to-date issuance volume has jumped to $14b and year-to-date supply is at $53b.

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 staged the biggest one-day rally in two weeks, capping a six-session advance that marks the longest winning streak in more than three months. Yields tumbled to a two-month low of 8.38% and spreads dropped below +450 to close at +446, the tightest in five weeks. The rally gained momentum as the latest readings on jobless claims and producer price index fueled expectations that the Federal Reserve is nearing the end of its aggressive monetary policy tightening.
• Junk bonds are headed for fourth week of gains, with week-to- date returns at 0.84%, the longest winning streak since December.
• The gains spanned across all high-yield ratings drawing more investors to junk bonds. The HYG and JNK ETFs reported combined cash haul of almost $2b on Thursday.  HYG saw an inflow of $955m, the biggest net inflow since Feb. 2, and JNK’s inflow of $960m was the biggest since November last.
• CCCs, the riskiest of junk bonds, were the best performing asset in the high-yield universe. Yields plunged to an almost two- month low of 13.14% and spreads were at a five-week low of +946.
• The minutes of the March 21-22 Fed meeting showed that a group of policy makers weighed pausing and called for flexibility on decisions in the upcoming meetings. The Fed staff projected a “mild recession” starting later in 2023, followed by a recovery in subsequent two years.
• Fed officials have also signaled that some pause may be warranted.
• The primary market sees a window of opportunity here as investors pile on new issues as they look for opportunities to put money to work.
• The market has priced $12b month-to-date driving the year-to-date tall to almost $51b.

(Bloomberg)  Fed Leans Toward Another Hike, Defying Staff’s Recession Outlook

• Federal Reserve officials appear on track to extend their run of interest-rate hikes when they meet next month, shrugging off their advisers’ warning of recession with a bet that they need to do a little more to curb inflation.
• Minutes of last month’s policy meeting showed officials dialed back expectations of how high they’ll need to lift rates after a series of bank collapses roiled markets last month. Still, officials raised their benchmark lending rate a quarter point to a range of 4.75% to 5%, as they sought to balance the risk of a credit crunch with incoming data showing price pressures remained too high.
• They did so even after hearing from Fed staff advisers that they were forecasting a “mild recession” later this year.
• Officials agreed “some additional policy firming may be appropriate,” according to minutes of the Federal Open Market Committee gathering, a posture several Fed speakers have reiterated in recent days.
• Policymakers “commented that recent developments in the banking sector were likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation,” the minutes said, though they agreed the extent of the effects was uncertain. “Against this background, participants continued to be highly attentive to inflation risks.”
• Earlier Wednesday a key measure of US inflation showed hints of moderating in March, but likely not by enough to dissuade the Fed from a rate hike in May.

• Economists see the most likely outcome as a quarter-point increase at the next meeting, followed by an extended pause. But the language in the minutes, coupled with some officials’ comments and a still-uncertain outlook for the impact of credit tightening on the economy, point to a rate path that may not be fully settled.

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 to close the month with modest gains even after a tumultuous two-week stretch fueled by instability in the banking industry. All told, junk bonds have managed to rebound from February losses that were spurred by fears that aggressive interest-rate hikes would trigger a recession. Spreads tightened and yields dropped in the last two weeks, helped by market expectations that the Fed’s policy-tightening campaign has peaked. Spreads fell from 509 bps to 472, a 37 bps fall since March 17. Yields tumbled from near 9% to 8.75% over the same period.
• The recent banking turmoil, however, has bifurcated the market into high- and low-risk segments, with BBs, the highest rating in the junk universe, poised to post gains of 1.16% as yields tumbled 14 bps month-to-date to around 6.99%.
• CCC spreads, the riskiest of junk bonds, were still in the distress zone of +1,005. They are on track to post the biggest monthly loss since September of last year. The month-to-date losses are 2.12%. Yields jumped 50bps month-to-date to close at 13.82%.
• As spreads and yields stabilized after the banking turmoil, the primary market doors cracked open with a bit on new issuance.
• All told, US junk bonds are headed to end the quarter with gains of 2.71%. Despite a loss for the month, CCCs are still ready to close the quarter with the biggest gains since the second quarter 2021, thanks to an earlier advance in January.
• The first quarter supply is at $38.875b, the lowest since first quarter of 2016. March priced $4.8b, the lowest March tally since 2020.
• The market may extend the rally on a broader risk-on move as US equity futures climb and stocks were headed for a second quarterly gain, underscoring investor optimism in the face of banking turmoil and elevated interest rates.

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.

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.9 billion and year to date flows stand at -$12.6 billion.  New issuance for the week was nil and year to date issuance is at $38.5 billion.

(Bloomberg)  High Yield Market Highlights

• The turmoil in the US regional banking industry and the near-collapse of the Swiss bank Credit Suisse Group AG caused investors to spurn risk and pull funds out of the asset class. CCCs, the riskiest segment of the US junk bond market, were headed toward the biggest weekly loss since September of last year. The week-to-date losses in CCCs stood at 1.76% as spreads moved to the distress zone and closed at +1,014bps.  The upheaval caused by fears of contagion in the banking sector and renewed concerns about Fed rate decisions in the upcoming meeting brought the primary market to a screeching halt.
• The consumer price index, excluding food and energy, increased 0.5% last month according to a report on Tuesday. That’s the most in five months, forcing the Fed to consider pressing its inflation fight even while mending the regional banking industry.
• Moody’s expects the Federal Reserve to raise the federal funds rate by 25bps at its March 22 meeting, Madhavi Bokil wrote on Wednesday.
• “Broader tightening of bank lending conditions will factor into decisions as to how high the rate should go to bring down inflation,” she wrote.
• The tumult with Credit Suisse seems to have stopped on Thursday, after the firm opened a 50 billion Swiss franc ($54 billion) credit line with the Swiss National Bank.
• But Credit Suisse came soon after the collapse of regional US lenders including Silicon Valley Bank late last week and Signature Bank this week fueling concerns about financial stability.
• Yields surged to 9% for the first time this year, and spreads breached the +500 level for the first time since October but calmed down after interventions and closed at 8.93% and +485bps, respectively.
• Junk bonds rebounded across the board on Thursday. The broader high yield index posted modest gains 0.41%. But it is headed toward second straight week of losses. The week-to-date losses are 0.28%.
• Elevated volatility, continuing uncertainty about economic growth, concerns about sticky inflation and the pace of rate hikes have kept junk bond borrowers on the sidelines.

(Bloomberg)  Dash for Cash by Banks Fuels Signs of Tension in Funding Markets

• There are some signs of increased pressure within US dollar funding markets as fears grow around the outlook for the banks and the turmoil drives lenders to shore up their own cash buffers.
• With global financial markets reeling in the wake of Silicon Valley Bank’s bank-run-fueled failure last week, worries about the future of Credit Suisse Group AG have amped up global concern. That sent short-end debt-market rates plummeting again Wednesday as investors radically shifted their outlook for central bank policy and flocked to haven assets.
• Dollars continue to flow through the pipes of the interbank lending system, but there are indications that the cost of funding is ticking up and that institutions are taking the precaution of building up their cash piles.
• Rates on overnight repurchase agreements moved higher for a period on Wednesday, pointing to stronger demand and general jitteriness. And a number of other market indicators, including the gap between forward-rate agreements and overnight index swaps, are also indicating heightened tension. Activity around the Federal Home Loan Banks system in recent days is suggestive of banks looking to ensure they have enough cash.
• Here are some of the funding-market indicators to look at for signs of pressure.
• The rate on repurchase agreements for US dollars, a key funding market, moved higher Wednesday. The general collateral overnight repo rate first traded with a bid-ask spread of 4.67%/4.66%, according to ICAP. That compares with around 4.45% at the end of Tuesday.
• “If we do start to see a broad based increase in repo rates that will get the market and perhaps the Fed more concerned about the overall health of the banking system,” BMO Capital Markets Strategist Ian Lyngen said in a phone interview.
• The gap between direct forward-rate agreements and index-tied ones — often used as a measure of the difficulty banks have in getting access to funds — has swelled. It this week moved to levels last seen around the early stages of the Covid pandemic in 2020.
• The Federal Home Loan Banks system, which provides funding to commercial banks and other members via so-called advances, has been increasing the amount of funds it has on hand, suggesting that it has seen a dramatic uptick in demand for dollars. In an unusual move, the FHLBs on Monday raised an unprecedented $88.7 billion through floating-rate notes, followed by another $19 billion on Tuesday. It has also raised some $22.87 billion via term discount notes and has overnight funding on top of that, which reached $67.55 billion on Monday.
• The total amount of advances to members, which is published quarterly, had already more than doubled to $819 billion last year as increased Fed interest rates helped put pressure on deposits and this latest episode may push them higher still.
• Another sign of the FHLBs needing to filter more money to its members is in its apparent pullback from the fed funds market. It’s the biggest player in that market, a place it tends to park its extra cash, so a pullback in fed funds activity — as has been witnessed this week — is indicative of the FHLBs channeling more money to other places.
• One area that market participants will be keeping a keen eye on is the usage of various official backstop facilities from the Fed. This past weekend saw US authorities introduce a new backstop for banks, the Bank Term Funding Program. Borrowing from the emergency bank facility will be disclosed each Thursday in the Fed’s regular balance sheet update, but individual borrowers won’t be named for two years.

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.

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$2.1 billion and year to date flows stand at -$10.4 billion.  New issuance for the week was $6.9 billion and year to date issuance is at $37.9 billion.

(Bloomberg)  High Yield Market Highlights

• US junk bonds dropped heading into the end of the week, eroding earlier gains, as anxious investors pulled cash out for the third week in a row.  The losses reached across ratings after data showed a strong jobs market and manufacturing shrinking less than expected, renewing concerns about inflation and more restrictive monetary policy.
• Strong economic data led Fed officials to again reiterate that the central bank may have to raise interest rates by more than previously expected.
• Price pressures remain firm, disrupting the dis-inflationary narrative, Brad Rogoff and Dominique Toublan from Barclays wrote on Friday. The market may be capitulating toward a higher terminal rate, but elevated yields and a lack of near-term catalysts for material de-risking should keep spreads range-bound in the medium term, they wrote.
• US junk bond yields rose for the second day in a row Thursday to close 8.72%.

(Bloomberg)  Fed Officials Warn They May Need to Lift Rates to a Higher Peak

• Two Federal Reserve policymakers cautioned that recent stronger-than-expected readings on the US economy could push them to raise interest rates by more than previously expected.
• In remarks Thursday, Governor Christopher Waller said that if payroll and inflation data cool after hot prints in January, “then I would endorse raising the target range for the federal funds rate a couple more times, to a projected terminal rate between 5.1% and 5.4%.”
• “On the other hand, if those data reports continue to come in too hot, the policy target range will have to be raised this year even more to ensure that we do not lose the momentum that was in place before the data for January were released,” Waller said in remarks prepared for delivery at an event hosted by the Mid-Size Bank Coalition of America.
• Waller’s speech followed comments by Atlanta Fed President Raphael Bostic, who told reporters that he still favored raising rates by 25 basis points in March but was open to lifting borrowing costs higher than he had envisioned if the economy remained so robust.
• “I want to be completely clear: There is a case to be made that we need to go higher,” Bostic said. “Jobs have come in stronger than we expected. Inflation is remaining stubborn at elevated levels. Consumer spending is strong. Labor markets remain quite tight.”
• Officials next meet March 21-22, and by then they will have seen fresh reports on employment and inflation. Recent incoming data has been surprisingly strong: Employers added 517,000 new workers in January while inflation remains well above the central bank’s 2% target.
• Waller said the payroll report, together with a decline in the unemployment rate in January to 3.4%, showed “that, instead of loosening, the labor market was tightening.”
• Fed officials are discussing their evolving outlook, which may include holding the policy rate higher for longer than they expected when they published their last forecast in December.
• Fed Chair Jerome Powell will have a chance to update lawmakers on the outlook when he heads to Capitol Hill next week to deliver his semi-annual testimony to Congress. He appears before the Senate Banking Committee on Tuesday and the House Financial Services Committee Wednesday.

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.