Category: Investment Grade Weekly

Credit spreads inched wider this week, just off their tightest levels of the year.  The Bloomberg US Corporate Bond Index closed at 77 on Thursday November 14 after closing the week prior at 74.  The 10yr Treasury moved from 4.30% last Friday to 4.43% through Thursday and it is a few basis points higher this Friday morning as investors continued to digest comments from Jerome Powell late Thursday afternoon that indicated that the Fed was in no hurry to raise its policy rate, casting some doubt on a cut at the December 17-18 meeting.  Through Thursday, the corporate bond index year-to-date total return was +2.41%.  The yield to maturity for the IG corporate bond index closed at 5.25% on Thursday.

Economics

This was the busiest week for economic releases in some time.  The bond market was closed on Monday and Tuesday was quiet but things started to pick up on Wednesday with a CPI print that came in line with economist forecasts resulting in a subdued market reaction.  On Thursday, PPI came in slightly higher than expected.  Friday brought a very solid retail sales print for the month of October with a sharp revision upward for the September, sparking a modest sell-off in the Treasury market.  As we discussed earlier in this note, Fed Chair Powell spoke in Dallas Thursday afternoon and he gave plenty of lip service to data dependency between now and the next FOMC rate decision on December 18.  This has cast some doubt on the prospect of a rate cut at the next meeting and futures were pricing in a 62.4% probability of a cut at the end of trading on Thursday.  This number had been as high as 82.5% just a day earlier.  Next week is extremely light on the economic front domestically but there are CPI data releases in the UK and Japan.  While foreign CPI is not particularly meaningful for our markets in a vacuum, they are instructive prints for the direction that those central banks may take with regard to their policy rates, which can impact the relative value of U.S. Treasuries in a global context.

Issuance

It was the busiest week for investment grade issuance in 2 months as borrowers priced almost $46bln of new debt.  The total for 2024 has now eclipsed $1.4 trillion, well ahead (+28%) of 2023’s pace.  Next week, syndicate desks are looking for $20-$25bln of new supply.

Flows

According to LSEG Lipper, for the week ended November 13, investment-grade bond funds reported a net outflow of -$0.444bln.  This outflow broke a streak of 15 consecutive weeks of inflows.  Total year-to-date flows into investment grade funds were +$70.7bln.

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.

Credit spreads ripped tighter this week.  The Bloomberg US Corporate Bond Index closed at 75 on Thursday November 7 after closing the week prior at 83.  The index finished Thursday at its tightest level of 2024.  The 10yr moved from 4.38% last Friday to 4.33% through Thursday but that does not tell the whole story as the Treasury market was quite volatile this week on the back of Tuesday’s election with most benchmark rates trading in ranges of 20+ bps throughout the week.  Through Thursday, the corporate bond index year-to-date total return was +3.19%.

Economics

The election overshadowed what was a reasonably busy week for economic data but none of the prints missed expectations in either direction resulting in little market impact.  The FOMC rate decision on Thursday was in line as the central bank delivered a 25bp cut to its policy rate.  The Fed meets one more time this year on December 18 and interest rate futures were pricing a 71% chance of a 25bp cut at that meeting as of Thursday evening but there is plenty of data to parse over the next 5 weeks that could change investor opinions.  Important potential movers next week are CPI on Wednesday, PPI on Thursday and retail sales on Friday.

Issuance

It was a very slow week for issuance, as expected.  There was one $700mm deal priced on Monday and then nothing until Friday morning.  With two smaller deals pending on Friday the total issuance tally for the week will likely come in at ~$1.7bln once the dust settles.  Next week could see some increased activity if Treasury volatility subsides but the bond market is closed on Monday in observance of Veterans Day and there are still be many companies that are in earnings blackout.  These factors could result in a lighter new issue calendar.

Flows

According to LSEG Lipper, for the week ended November 6, investment-grade bond funds reported a net inflow of +$3.3bln.  This was the 15^th consecutive week where the asset class reported an inflow.  Total year-to-date flows into investment grade funds were +$71.1bln.

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.

Credit spreads moved slightly wider this week but remain just 5 basis points off YTD tights.  The Bloomberg US Corporate Bond Index closed at 84 on Thursday October 31 after closing the week prior at 82.  The 10yr moved from 4.24% last Friday to 4.28% through Thursday.  Through Thursday, the corporate bond index year-to-date total return was +2.77%.  The yield to maturity on the corporate index has been boosted in recent weeks by higher Treasury yields and it closed Thursday at a YTM of 5.16%.

Economics

It was a busy week for economic data.  The big takeaways were that the consumer is still spending and inflation is still sticky.  The payroll report on Friday was a big miss in terms of jobs added but this report was not viewed as all that meaningful due to noise from hurricanes and labor strikes.  All told, the data this week pushed Treasury yields slightly higher.  As we move ahead to next week all eyes will be on the election on Tuesday which will be immediately followed by a FOMC rate decision on Wednesday afternoon.  As we go to print, Fed Funds Futures are pricing in a 98.5% chance that the Fed delivers a 25bp cut.

Issuance

It was a solid week for issuance as IG-rated companies priced just over $27bln in new debt, capping the busiest October since 2021.  Next week is likely to see little to no issuance, though it is possible some companies could give the market a look on Monday.

Flows

According to LSEG Lipper, for the week ended October 30, investment-grade bond funds reported a net inflow of +$3.21bln.  This was the 14^th consecutive week where the asset class reported an inflow.  Total year-to-date flows into investment grade funds were +$67.8bln.

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.

Credit spreads moved wider this week after touching their snuggest levels of the year just 7 days ago.  The Bloomberg US Corporate Bond Index closed at 84 on Thursday October 24 after closing the week prior at 81.  The 10yr Treasury yield moved higher this week, cresting at a 3-month high on Wednesday. The 10yr moved from 4.08% last Friday to 4.21% through Thursday.  Through Thursday, the corporate bond index year-to-date total return was +3.14%.  The yield to maturity on the corporate index has inched back above 5% and closed Thursday at a YTM of 5.08%.

Economics

It was a benign week for economic data with little in the way of market moving prints.  Existing home sales didn’t improve in September even as mortgage rates came down which was somewhat of a surprise but with no discernible market impact.  S&P global PMI numbers were in line with expectations.  Next week brings some more meaningful releases with GDP as well as personal income/spending and the all-important Core PCE.  Looking ahead, the FOMC meets on November 7.  Recall that there is no Fed meeting in the month of October.

Issuance

It was an underwhelming week for issuance, which is not something that we have been able to write very frequently throughout 2024.  Companies priced just $12.1bln of high-grade bonds relative to the consensus estimate of $20bln.   Treasury yields have moved higher over the past few weeks making issuance slightly less attractive for borrowers.  We are also in the midst of corporate earnings meaning the window is closed for some companies.  We expect another relatively quiet week ahead with the election fast approaching.

Flows

According to LSEG Lipper, for the week ended October 23, investment-grade bond funds reported a net inflow of +$1.88bln.  This was the 13^th consecutive week where the asset class reported an inflow.  Total year-to-date flows into investment grade funds were +$64.6bln.

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.

Credit spreads moved tighter again this week and are now trading at the narrowest levels that they have seen in years.  The Bloomberg US Corporate Bond Index closed at 79 on Thursday October 17 after closing the week prior at 81.  The 10yr Treasury yield was less than a full basis point lower week over week through Thursday, trading at 4.09% into the close. Through Thursday, the corporate bond index year-to-date total return was +4.10%.

Spreads are Tight, and for Good Reason

It has become a common refrain among some investors who are quick to shout from the rooftops about how tight credit spreads are, especially as spreads have been grinding lower for the past month.  The index is 22bps tighter since September 11 and the spread on the Corporate Index is at its lowest level since 2005.  First, we would remind investors that tight spreads are not limited to investment grade and that they are tight across the entire fixed income universe.  And why shouldn’t spreads be tight?  Stocks are at or near all-time highs.  The economy continues to hum along and a “soft landing” or “no landing” has become increasingly likely.  Most especially, if the economy takes a turn for the worse, the vast majority of investment grade rated companies are in little danger of delivering any type of permanent impairment to their bondholders.  This is not true in other sectors of the bond market like leveraged loans, junk bonds or private credit, all of which carry appreciably more credit risk for investors than the investment grade market.

Aside from a strong fundamental backdrop, there are also numerous technical factors that have been supportive of spreads.

• The permanence of the foreign bid. Foreign investors are among the largest holders of US corporate bonds and while they haven’t been huge buyers in 2024, they also haven’t been sellers and have still been adding to positions at the margin.
• Fund flows into the IG asset class have been roundly positive by all measurable sources. One source of fund flows that we track has shown positive inflows into IG funds in 36 of 42 weeks thus far in 2024.
• Life and P&C insurance companies have been strong buyers of IG credit on the entire curve throughout 2024. Have you looked at your insurance bill lately?  Premiums are up sharply in recent years and insurance companies invest the majority of these funds into investment grade fixed income in order to pay future claims.
• Pensions need to be rebalanced and many are fully funded. With equity markets having posted strong returns in recent years pensions must divert more funds to their fixed income allocations in order to balance their overall portfolios.  Also, there are many more pensions that are fully funded today relative to where they have been in the recent past –this leads the pension manager to take less risk, favoring asset classes like IG credit.
• Lack of new issue supply in the final 10 weeks of the year could drive secondary spreads even tighter. It is well understood how strong corporate IG issuance has been thus far in 2024 but one of the reasons for this is the aforementioned demand factors.  It seems unlikely that issuance can sustain its torrid pace through year end and if in fact it does slow then this could be another technical that could drive spreads tighter.

Finally, the main reason that spreads are as tight is a rather simplistic one: it’s all about yield.  Many investors in the IG market are agnostic to the overall level of spreads and care much more about yield.  These investors use IG credit to solve a problem.  For example, they may have a liability coming due in 10yrs and they need a 5% annual return in a high-quality investment –there are many IG bonds that would satisfy that requirement.  Credit spread is simply a component of your overall yield when you invest in a corporate bond.  We have highlighted this throughout the year: the yield to maturity for the IG corporate bond index was 4.94% on Thursday afternoon.  The average YTM for the index the past 10yrs was 3.63%.  If you go back 20yrs that number was 4.16%.  Each investor has their own suitability requirements but we think IG credit at ~5% is undeniably attractive, especially considering how infrequently this type of compensation has been available in recent years.

Issuance

It was a solid week for issuance during the holiday shortened week as companies priced $25.8bln of new debt. However, this fell short of the top end of estimates that were looking for as much as $30bln.  Financial firms accounted for 100% of issuance this week which was widely expected by investors with banks hungry to issue debt on the back of earnings.  Many of the banks printed strong quarterly earnings reports which led to enthusiastic investor demand for their new debt.  We continue to expect issuance to slow over the next 17 days as the election draws nearer but syndicate desks are still looking for a respectable $20bln of issuance in the week to follow.

Flows

According to LSEG Lipper, for the week ended October 16, investment-grade bond funds reported a net inflow of +$2.17bln.  This was the 12^th consecutive week where the asset class reported an inflow.  Total year-to-date flows into investment grade funds were +$62.7bln.

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.

Credit spreads inched tighter this week, breaching a new year-to-date low.  The Bloomberg US Corporate Bond Index closed at 81 on Thursday October 10 after closing the week prior at 83.  The 10yr Treasury yield was 9 basis points higher this week through Thursday, moving from 3.97% to 4.06%. Through Thursday, the corporate bond index year-to-date total return was +3.97%.

Economics

The highlights this week were led by CPI and PPI on Thursday and Friday, respectively.  CPI came in a smidge hotter than expectations but it was not enough to meaningfully alter the outlook with regard to inflation and there was no real discernable impact to equities, credit or rates.  The PPI data set was relatively tame and best described as in-line with expectations.

Next week is a light one from a data perspective with the only meaningful print occurring next Thursday morning with retail sales.

Issuance

It was a solid week for issuance as companies priced $16.1bln of new debt, besting the top end of the estimated range ($15bln).  Bank earnings season is underway as of Friday and the big-six money center banks are expected to dabble in the primary market next week creating a wide range of estimates with dealers looking for $10-$30bln of new supply.  Next week is a holiday shortened one with the market closed on Monday for Columbus Day.  As the calendar rolls into the second half of October it would not surprise us if the new issue market took a breather heading into election season.

Flows

According to LSEG Lipper, for the week ended October 9, investment-grade bond funds reported a net inflow of +$1.83bln.  This was the 11^th consecutive week where the asset class reported an inflow.  Total year-to-date flows into investment grade funds were +$60.5bln.

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.

Credit spreads traded within a narrow window this week and are 1 basis point better week over week.  The Bloomberg US Corporate Bond Index closed at 90 on Thursday September 26 after closing the week prior at 91.  The 10yr Treasury yield was higher this week through Thursday, up 5.5 basis points from where it closed last Friday. Through Thursday, the corporate bond index year-to-date total return was +5.22%.

Economics

There were some data points during the week to highlight.  One of the most interesting under the radar prints was consumer confidence on Tuesday morning which fell the most in three years from the prior month’s reading.  A closer look at the data showed that consumers were hesitant to spend with a labor market that has been showing signs of slowing amid persistently high costs of living.  On Thursday there was a GDP release that showed that figure coming in at +3% for the second quarter.  This was slightly better than the consensus estimate and economists are looking for an expansion of +2% in the third quarter.  So, while GDP may be slowing, it is expected to remain in positive territory.  The most anticipated release of the week was PCE and spending data on Friday morning.  The Fed’s preferred inflation gauge and spending both rose at very modest levels which is likely to keep the Fed on track for another cut at its November 7^th meeting, although there is still plenty of data that could sway them between now and then.  Recall that there is no meeting in the month of October.

Next week is very similar to this week in that there are some meaningful data points but we will again have to wait until Friday for the main event which is the September payroll release.

Issuance

It was déjà vu all over again as issuance this week once again exceeded expectations.  Companies brought $37bln of new bonds to market relative to the high end of estimates at $25bln.  This capped off the busiest September on record at $168bln of monthly supply.  The previous high-water mark was $164bln amid the pandemic borrowing binge of September 2020.  Interestingly, according to sources compiled by Bloomberg, this was the fourth month this year where a record for monthly issuance volume was broken.  The previous record setting months were January, February and July.  More than 1.261 trillion of new debt has been priced in 2024 putting it a whopping +29% ahead of 2023’s pace.  As we have written in previous commentaries it is somewhat of a goldilocks scenario for both borrowers and lenders (bond sellers and bond buyers) in that the prices paid are attractive for both parties.  Absent any meaningful move in either direction for rates and/or spread we would expect this type of environment to persist although we could see a slowdown ahead of the November 5^th presidential election.

Flows

According to LSEG Lipper, for the week ended September 25, investment-grade bond funds reported a net inflow of +$1.34bln.  Short and intermediate investment-grade bond funds have seen positive flows 33 of the past 39 weeks.  The total year-to-date flows into investment grade funds are +$55.1bln.

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.

Credit spreads moved meaningfully tighter this week with the index trading at its richest level since late July.  The Bloomberg US Corporate Bond Index closed at 91 on Thursday September 19 after closing the week prior at 96.  The 10yr Treasury yield drifted higher throughout the week, up 6 basis points from where it closed last Friday.  The entire Treasury curve continued to steepen on the back of Wednesday’s policy rate cut by the FOMC.  Through Thursday, the corporate bond index year-to-date total return was +5.58%.

Economics

The long awaited FOMC rate cut finally came to fruition this week.  The Fed elected to kick things off with a 50bp cut.  We would not call this a surprise, per se, but 25bps was what the market was looking for up until the middle of last week when the odds (Fed Funds futures) started to show an increasing likelihood of 50bps.  The Summary of Economic Projections (SEP or Dot Plot) that was released at this meeting showed that a majority of FOMC members believe that there will be 50bps of additional cuts in 2024 and 100bps of cuts in 2025.  The Fed does not meet in October so market prognosticators have extrapolated a 25bp cut at each of the November and December meetings.  By all accounts it appears that the Fed was close to delivering a 25bp cut at its July meeting (there was no August meeting) and employment revisions and economic data since that time led them to “catch up” to the fact that they did not cut earlier by kicking things off with 50bps instead of 25bps.  Remember that the September SEP is merely a forecast and does not necessarily reflect what will actually occur in the future.  The SEP is only updated once every three months and simply reflects the median view of the FOMC members at a given point in time.  That being said, 50bps of cuts in ’24 with an additional 100bps in ’25 sounds right to us given what we know today and what has been a resilient economy.  We would also expect that at some point in 2025 the Fed may elect to end its balance sheet reduction (aka QT or quantitative tightening).  The Fed kept its current plan in place for the time being where it will continue to allow $60bln of its balance sheet reduce each month.  The current cycle of QT has reduced the Fed’s balance sheet from a peak of $9bln in mid-2022 to just above $7bln today, which is still elevated relative to pre-pandemic levels.  The Fed’s balance sheet prior to March 2020 was just ~$4.25bln and prior to the 2008 financial crisis it was zero!

Next week is reasonably busy from an economic data standpoint.  The highlights include consumer confidence, new home sales, GDP and the main event next Friday morning with core PCE.

Issuance

Issuance was light this week and underwhelmed relative to expectations as just $12.4bln of new debt was sold relative to the forecast of $25bln.  In our view this “miss” can be explained by the mid-week Fed meeting and pull forward of issuance earlier this month as borrowers took advantage of a red-hot primary market in the days immediately following Labor Day.  Dealers are calling for $20-$25bln of issuance next week.  Over $131bln of debt has been priced so far in the month of September 2024.  The five-year average for September is $136bln with the busiest year being 2020 when $164bln priced during the month.

Flows

According to LSEG Lipper, for the week ended September 18, investment-grade bond funds reported a net inflow of +$1.86bln.  Short and intermediate investment-grade bond funds have seen positive flows 32 of the past 38 weeks.  The total year-to-date flows into investment grade funds are +$53.8bln.

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.

Credit spreads did not change much this week though the index may finish the period a basis point tighter if the current trend holds through the end of the day on Friday.  The Bloomberg US Corporate Bond Index closed at 92 on Thursday September 5 after closing the week prior at 93.  The 10yr Treasury yield traded lower throughout the week, down 17 basis points from last week through Thursday’s close.  The 2/10 Treasury curve closed with a positive slope on Wednesday evening for the first time since July 1 2022, snapping the longest streak on record for a 2/10s curve inversion.  Through Thursday, the corporate bond index year-to-date total return was +4.71%.

Economics

The biggest data release during this holiday shortened week was Friday’s job report which came up slightly short of expectations keeping the FOMC on schedule to deliver the first policy rate cut on September 18.  There are some meaningful prints next week with CPI, PPI and consumer sentiment data, but today’s employment report was the last large hurdle to clear to ensure a rate cut, in our view.  Now it just comes down to a matter of whether the Fed will deliver 25 or 50 basis points with its first ease of the cycle.  As we go to print Friday morning traders are split on the magnitude of a cut with Fed Funds Futures pricing a 100% chance of at least a 25bp cut and a 40% chance of a 50bp cut.

Issuance

Issuance was the big story of the week as US investment grade bond sales topped $80bln capping the fifth busiest week on record according to Bloomberg.  The wild week that was featured a record breaking 29 borrowers tapping the market on Tuesday for a total of $43.3bln.  Volume-wise Monday was the third busiest day on record.  With $80bln of issuance in the first four trading days of the month it seems that we are well on our way to hitting the $125bln September estimate that dealers were looking for at the end of August.  Next week syndicate desks are projecting $30-$35bln of issuance though we would not be surprised if one or two larger deals could push that total higher.  Year-to-date issuance now stands $1.174 trillion which is +29% ahead of last year at this point in time, and 2023 was not a light year by any means.

Some readers may be wondering why issuance has been so robust this year even as we are on the precipice of a Fed easing cycle.  There are a few reasons why the environment for IG issuance has been so strong.  First, fund flows into the IG asset class have been solid thus far in 2024 which means a variety of investors have money to put to work.  However, a large portion of IG investors (~70%) are institutional in nature and are not necessarily reliant on these flows.  These are life insurance companies, property casualty insurance companies, pensions, banks and foreign institutional investors.  These investors often have long term liabilities that they need to match against an income stream (asset liability matching) and high-quality investment grade bonds are a very good vehicle to help them accomplish these goals.  There are also scores of investors in the IG market with long time horizons such as pensions and endowments.  These investors always have funds to invest and this has been magnified by rebalancing.  Due to the strong performance of equities the past few years these accounts have been allocating even more funds to IG credit as some of those equity gains find their way into corporate bonds.  With real and nominal yields at elevated levels relative to the recent past institutional investors of all types have been very active buyers of IG credit and this is a trend that has been in place for the past 18 months.  In recent months we have started to see increased interest from retail investors in the form of SMA/mutual fund/etf which is more reflected in fund flows and creates some additional demand for IG issuance.  We believe this interest will only continue to increase as the Fed cuts its policy rate which will in turn lower the interest rate for money market accounts, high yield savings and other cash alternatives.

From the perspective of companies, a popular misconception is that they should wait for the Fed to cut before they borrow.  This may be true at the very front end of the Treasury curve but when the Fed cuts its policy rate it typically has little effect on the 10yr or 30yr Treasury. The trading levels of these longer maturities are more reflective of investor expectations for inflation and economic growth.  Many companies, especially large investment grade rated companies, are doing quite well operationally.  Margins are at or near their peak for some companies and many companies are still increasing profit margins.  Companies are no longer getting the free lunch they were getting back when they were borrowing in the low-rate era but their business models can easily support long term funding in the 4-6% range so they are not letting that level of interest expense interfere with their long-term plans for growth, expansion or M&A.  This has made for an environment where investors are happy to lend at what they view as attractive interest rates and borrowers are happy to lock in funding at levels where the math still works for their business plans.  The current environment for investment grade is about as close as you can get to a win-win for both investors and borrowers.

Flows

According to LSEG Lipper, for the week ended September 4, investment-grade bond funds reported a net inflow of +$3.3bln.  Short and intermediate investment-grade bond funds have seen positive flows 30 of the past 36 weeks.  The total year-to-date flows into investment grade funds are +$50.1bln.

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.

Credit spreads exhibited little change during the week before Labor Day.  The Bloomberg US Corporate Bond Index closed at 94 on Thursday August 29 after closing the week prior at the same level.  The 10yr Treasury yield was slightly higher throughout this week, up 6 basis points from last week through Thursday’s close.  Through Thursday, the corporate bond index year to date total return was +3.77%.

Economics

There were several big data releases this week but all were within the realm of expectations.  Durable goods orders surprised to the upside on Monday but it was driven almost entirely by aircraft which can be volatile.  GDP too came in slightly higher than expectations amid resilient consumer spending.  Finally, on Friday morning we got the Fed’s preferred inflation gauge.  It was a relatively good print for PCE that along with revisions showed that moderating inflation is trending in the right direction, inching closer to the Fed’s 2% target.  Next week has some reasonably meaningful economic releases including the employment report on Friday which is the last big data point ahead of the next FOMC meeting on September 18.

Issuance

Companies priced just $2.05bln of new debt this week across a handful of small deals.  Syndicate desks are predicting $125bln of new issue volume for the month of September.  In 2023, borrowers priced $55bln during the first week of September and 2024’s haul could be similar, with a flurry of activity expected right out of the gate.  The year-to-date issuance total now stands at $1.094 trillion.

Flows

According to LSEG Lipper, for the week ended August 28, investment-grade bond funds reported a net inflow of +$1.76bln.  Short and intermediate investment-grade bond funds have seen positive flows 29 of the past 35 weeks.  The total year-to-date flows into investment grade funds are +$46.81bln.

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.