Category: Investment Grade Weekly

Credit spreads drifted sideways this week and are looking to finish the period just slightly tighter.  The Bloomberg US Corporate Bond Index closed at 95 on Thursday August 22 after closing the week prior at 96.  The 10yr Treasury yield was little changed from the week prior, less than 3 basis points lower week over week through Thursday.  Through Thursday, the corporate bond index year to date total return was +3.63%.

Economics

It was a light week for economic releases.  There was a BLS payrolls revision on Wednesday that showed that job growth over most of the past year was lighter than expected but this was not a market moving event.  FOMC meeting minutes, jobless claims that were mostly inline and a S&P PMI print that beat expectations rounded things out but none were particularly meaningful for market direction.  As we go to print this Friday morning, Jerome Powell is just beginning to deliver his policy speech at the Jackson Hole Economic Symposium and his prepared remarks indicate that the Fed is nearly ready to begin cutting its policy rate.  Next week things ramp up with durable goods on Monday, GDP on Wednesday and income/spending data along with PCE data on Friday.

Issuance

It was a strong week for issuance considering that the second half of August is typically seasonally slow.  Investment grade companies priced nearly $23bln of new debt with Kroger leading the way as it priced a $10.5bln seven-part jumbo deal to prefund a portion of the cash component for its potential acquisition of Albertsons.  Next week syndicate desks are looking for less than $5bln of new debt and $0 is a real possibility as the week before Labor Day is nearly always one of the quietest of the year for the primary market.  The year-to-date issuance total now stands at $1.091trln, +27% ahead of 2023’s pace.

Flows

According to LSEG Lipper, for the week ended August 21, investment-grade bond funds reported a net outflow of -$0.345bln.  Short and intermediate investment-grade bond funds have seen positive flows 28 of the past 34 weeks.  YTD flows into IG stand at +$45.05bln.

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 initially moved wider this week on Monday before snapping tighter throughout the rest of the period.  The Bloomberg US Corporate Bond Index closed at 96 on Thursday August 15 after closing the week prior at 102.  The 10yr Treasury yield experienced some meaningful intraday moves throughout the week but was little changed from the week prior, only 3 basis points lower through Thursday.  Through Thursday, the corporate bond index year to date total return was +3.11%.

Economics

There was plenty of action this week with a bevy of economic releases.  PPI on Tuesday and CPI on Wednesday both came in slightly below estimates, indicating that slowing inflation has maintained its momentum.  On Thursday morning, retail sales data for July came in much better than expected, although the control group posted just a modest gain that showed deceleration in control group spending from June to July.  Still, there was little in the retail sales print that indicated that the economy was anywhere near a consumer-led recession during the month of July leaving open the possibility of a soft landing.  Friday also saw a positive print for consumer sentiment data which saw an increase in sentiment for the first time in five months.  Next week’s economic docket is extremely light but there is plenty of action to come in the weeks that follow. Looking ahead, we await Jerome Powell’s policy speech at The Jackson Hole Economic Symposium on August 23^rd, followed by core PCE release on August 30^th.  On September 6^th we will get the August employment report followed by a CPI print on the 11^th which could set the table for the beginning of an easing cycle with an FOMC decision on September 18^th.

Issuance

It was a solid week for corporate credit issuance as borrowing companies sold $29bln in new debt.  Monday in particular was a busy day as 16 companies priced more than $18bln of new bonds across dozens of maturity bands.  The last two weeks of August are typically seasonally slow but syndicate desks are looking for $20bln in new debt next week.  The backdrop for borrowers remains favorable amid strong investor demand for high quality risk assets at yields that remain elevated relative to the recent past.  The year-to-date issuance tally continues to push well ahead (+26%) of 2023’s pace and 2024 volume has now topped $1,068bln.

Flows

According to LSEG Lipper, for the week ended August 14, investment-grade bond funds reported a net inflow of +$1.14bln.  Short and intermediate investment-grade bond funds have seen positive flows 28 of the past 33 weeks.  YTD flows into IG stand at +$45.4bln.

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 were meaningfully wider on the week while Treasuries rallied, sending yields lower.  The Bloomberg US Corporate Bond Index closed at 98 on Thursday August 1 after closing the week prior at 93.  The 10yr Treasury yield traded through its previous YTD low of 3.88% from back in January and it is trading at 3.85% this Friday morning.  This is after the 10yr benchmark closed last week at 4.19%. Through Thursday, the corporate bond index YTD total return was +2.16% while the yield-to-maturity for the benchmark was 5.10%.

Economics

It was a big week for data with all eyes on the Fed Wednesday afternoon.  The FOMC elected not to move its policy rate, as expected, and chairman Powell hinted at the fact that near term cuts could be on the horizon as soon as the September meeting.  What really threw markets into a tizzy was the NFP release on Friday morning which was a big miss to the downside.  As of the time we are going to print this morning the numbers are quite volatile.  Treasury curves are at their steepest levels of the 2024 and equity futures have fallen off a cliff.  The market narrative has quickly shifted from questioning if and when we would get a cut at all in 2024 to pondering 3 or 4 cuts.   Some market participants are now even calling for a 50bp cut at the September meeting for fear that the economy is slowing too rapidly. We would point out that this is only one job report, and by the way, the economy is still adding jobs not shedding them.  While the Sahm rule has been triggered, the unemployment rate still remains low by historical standards.  We have always been in the camp that expects a modest recession at some point and this jobs print could be the first step to that end but it is merely one data point.  One thing is certain, the market will have plenty of time to speculate between now and the FOMC’s next meeting on September 18^th.  It could be a long month and a half!

Issuance

It was once again another solid week for summer issuance as companies sold $31bln in new bonds.  It ended up as the highest volume July for issuance since 2017 and the second busiest ever.  Syndicate desks are looking for $40bln of new supply next week but that is contingent on a pull back in some of the volatility that the rates markets are experiencing this morning.  Even with spreads off their tights, CFOs and treasurers that were planning to borrow are likely excited at the prospect of lower Treasury yields which mean lower interest expense on new debt.  The year-to-date issuance tally has now climbed to $995bln.  For context, the $1 trillion mark was not reached until October during 2023 and 2022 according to Bloomberg.

Flows

According to LSEG Lipper, for the week ended July 31, investment-grade bond funds reported a net inflow of +$1.79bln.  Short and intermediate investment-grade bond funds have seen positive flows 26 of the past 31 weeks.  YTD flows into IG stand at +$42.5bln.

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 were modestly wider on the week.  The Bloomberg US Corporate Bond Index closed at 93 on Thursday July 25 after closing the week prior at 91.  The 10yr Treasury yield was slightly lower on the week at press time, trading at 4.21% this Friday morning after closing last week at 4.24%. Through Thursday, the corporate bond index YTD total return was +0.61% while the yield-to-maturity for the benchmark was 5.32%.

Economics

It was quite a busy week for economic releases but most of what we got was in line with expectations with the exception of GDP which came in meaningfully better than consensus.  The biggest print of the week was the Fed’s preferred inflation gauge on Friday which showed that inflation rose at a timid pace in June while consumer spending held up well but not too well.  Traders viewed this as a print that keeps the hope alive for a soft landing as well as a likely cut in the Fed’s policy rate at its September meeting.  Next week is busy too with consumer confidence and ISM data as well as a FOMC rate decision on Wednesday and the June Employment report capping things off on Friday morning.  Interest rate futures as of this Friday morning are pricing a 95+% chance that the Fed holds the policy rate steady next week.

Issuance

It was a solid week for new supply with $29.5bln of new debt hitting the market, although this fell short of the $35bln estimate.    UnitedHealth led the way, pricing a $12bln issue to fund M&A, the 4^th largest deal of 2024.  Occidental Petroleum also priced a chunky $5bln new deal.  Next week syndicate desks are looking for $25bln of new debt.  If that figure comes to pass then this July will rank among the busiest ever and will challenge the record that was set for July in 2017 when companies priced $122bln.  July can often be a slow month for new issue supply but this year has been anything but.  The year-to-date issuance tally has now climbed to $964bln which is more than 25% ahead of where things stood at this point last year.

Flows

According to LSEG Lipper, for the week ended July 24, investment-grade bond funds reported a net outflow of -$0.034bln.  Short and intermediate investment-grade bond funds have seen positive flows 25 of the past 30 weeks.  YTD flows into IG stand at +$39.8bln.

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

Economics

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

Issuance

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

Flows

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

This information is intended solely to report on investment strategies identified by Cincinnati Asset Management. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. Fixed income securities may be sensitive to prevailing interest rates. When rates rise the value generally declines. Past performance is not a guarantee of future results.

Credit spreads were little changed during the week.  The Bloomberg US Corporate Bond Index closed at 94 on Thursday June 27 after closing the week prior at the same level.  The 10yr Treasury yield is slightly higher on the week, trading at 4.33% this Friday afternoon after closing last week at 4.26%. Through Thursday, the corporate bond index YTD total return was -0.02% while the yield-to-maturity for the benchmark was 5.43%.

Economics

Economic data this week was mostly in line with consensus and there were no major surprises.  Highlights included a consumer confidence reading that was slightly below expectations and personal income data that came in slightly above expectations.  The biggest release this week was Friday morning’s PCE price index which was about as consistent with expectations as it possibly could be.  The release showed that the disinflationary environment sustained some momentum during May but it was probably not enough to make the Fed turn dovish.  Continued progress will be needed if the Fed expects to follow through with two cuts in the latter half of the year.  Next week is another disjointed one with several important releases early in the week (PMI, ISM manufacturing/services and durable goods) followed by a market holiday on Thursday in observance of Independence Day.  The biggest release of the week occurs on Friday morning with the employment report for the month of June.  Looking ahead, the Fed does not meet again until the very end of July.

Issuance

The IG primary market was strong this week as borrowers priced nearly $32bln in new debt, well ahead of the $20bln estimate.  More than half of this week’s volume was from borrowers outside the U.S., with Asia Pacific firms and governments leading the way.  So, although issuance was robust, it wasn’t coming from borrowers that are necessarily household names.  Next week syndicate desks are looking for a quiet week with just $5bln of issuance and only $80bln of issuance for the seasonally slow month of July (that estimate would make it the lowest volume month so far in 2024).  According to sources compiled by Bloomberg, after a record first quarter, the pace of issuance in 2024 slowed during the second quarter making 2024 the second busiest first half to a year on record.  It was eclipsed only by the surge in borrowing that occurred during the trading days that followed the official onset of the 2020 pandemic.

Flows

According to LSEG Lipper, for the week ended June 26, investment-grade bond funds reported a net inflow of +$0.389bln.  Short and intermediate investment-grade bond funds have seen positive flows 23 of the past 26 weeks.  YTD flows into IG stand at +$37.2bln.

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 incrementally wider for the second consecutive week. The Bloomberg US Corporate Bond Index closed at 94 on Thursday, June 20, after closing the week prior at 92. It isn’t shocking to see spreads take a breather as they have been at tight levels relative to historical trading ranges, and they have widened in concert with Treasury yields, which have decreased in recent weeks. The 10-year Treasury yield is nearly unchanged on the week, trading at 4.23% this Friday morning after closing last week at 4.22%. Through Thursday, the corporate bond index YTD total return was +0.16% while the yield-to-maturity for the benchmark was 5.39%. All-in yields remain elevated relative to the recent past – the average yield on the corporate index over the past 10 years was 3.56%, 183 bps lower than the yield available to investors today.

Economics

It was another busy week for economic data with a bevy of highlights. On Monday, we got an Empire Manufacturing print for that region that was better than feared but still showed contraction. Retail sales on Tuesday missed to the downside, and the release was also accompanied by downward revisions to previous months. It is too early to tell, but some economists believe that this could be the beginning of a sustained softening in consumer sentiment. On Thursday, we got housing data that showed new construction starts hit a four-year low. Lastly, on Friday, S&P’s data showed that U.S. services activity expanded in a broad-based way so far during the month of June. Positively, the survey also showed further softening of price pressures and a rebound in domestic manufacturing activity. Next week is pretty quiet on the data front until Thursday’s GDP and core PCE releases.

Issuance

The IG primary market rebounded this week as companies priced $31.4 billion of new debt – an impressive haul in a holiday-shortened week. We were unsure if issuance would really come through due to a spate of economic data and a looming summer slowdown, but Monday got the week off to a hot start as 13 issuers priced more than $21 billion. Next week, syndicate desks are looking for around $20 billion of issuance, but all it takes is one big issuer to push that total higher, much like we saw with Home Depot this week, which issued $10 billion on Monday to fund its acquisition of SRS Distribution.

Flows

According to LSEG Lipper, for the week ended June 19, investment-grade bond funds reported a net outflow of -$0.433 billion. This was the first outflow from IG funds in over a month, which have seen positive flows 22 of the past 25 weeks. YTD flows into IG stand at +$36.8 billion.

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 are slightly wider on the week.  The Bloomberg US Corporate Bond Index closed at 90 on Thursday June 13 after closing the week prior at 88.  Although this was the widest level for the index since late April, it is only 5bps off the tightest levels of the year which illustrates just how “unchanged” the index has been for the past month and a half.  The 10yr Treasury yield is lower this week, trading at 4.20% this Friday morning after closing last week at 4.43%. Through Thursday, the corporate bond index YTD total return was +0.41% while the yield-to-maturity for the benchmark was 5.33%.

Economics

There was a bounty of economic data this week with the biggest events occurring on Wednesday and Thursday.  Core CPI Inflation data for May was released on Wednesday morning, declining to +0.2% MoM relative to consensus of +0.3%.  This deceleration was a welcome relief on the heels of some hotter prints earlier this year.  However, this was just one data point and it does not make a trend.  On Wednesday afternoon the FOMC released its policy decision with no change in the Fed Funds rate, as expected.  The press conference was on script but there were some notable changes in the Summary of Economic Predictions (SEP aka The Dot Plot).  The SEP showed slightly higher Fed inflation forecasts for 2024 and 2025 and a move in the median number of cuts for 2024 from 3 to 1.  Interestingly, 4 of the 19 FOMC members are now expecting no cuts in 2024, which was up from 1 member in March.  Recall that the SEP is released every three months so the next update will not occur until September 18.  Thursday morning brought more good news on the inflation front as the PPI release showed that US producer prices declined in May by the most in seven months.  PPI for May came in at -0.2% versus the estimate of +0.1% but nearly 60% of the decline in the May PPI for goods was due to declining gasoline costs.  Next week is another busy one for economic data with empire manufacturing, retail sales, housing starts and global PMI, to name a few.

Issuance

The IG primary market was extremely slow this week as borrowers priced just $5.75bln in new debt.  According to Bloomberg, excluding seasonality and holiday-shortened weeks, this was the lowest volume total since borrowers raised $4.25bln in the week ended 12/9/2022.  The low issuance tally was really much ado about nothing: with CPI/Fed on Wednesday, that day was effectively closed to borrowers.  Interest rate volatility plus the beginning of summer seasonality likely kept a few issuers at bay on the other days. Year-to-date issuance remains robust, standing at $803bln YTD, up +20% relative to 2023.  Next week, dealers are calling for $25-$30bln in new supply.  While we expect some issuance as borrowers look to take advantage of lower borrowing costs, we are skeptical that it will be that strong of a week given the busy economic calendar and the fact that bond and equity markets are closed on Wednesday in observance of Juneteenth.

Flows

According to LSEG Lipper, for the week ended June 12, investment-grade bond funds reported a net inflow of +$0.989bln.  IG funds have seen positive flows 22 of the past 24 weeks.  YTD flows into IG stand at +$37.2bln.

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 have exhibited little change this week.  The Bloomberg US Corporate Bond Index closed at 87 on Thursday May 16 after closing the week prior at the same level.  The 10yr Treasury yield is lower this week, trading at 4.42% this Friday afternoon after closing last week at 4.50%. Through Thursday, the corporate bond index YTD total return was -0.74% while the yield-to-maturity for the benchmark was 5.44% relative to its 5-year average of 3.69%.

Economics

It was an action-packed week for data with a hot Producer Price Index (PPI) print kicking things off on Tuesday.  Market participants were on guard following PPI as many were expecting a similar surprise to the upside for the Wednesday CPI release. Instead, we got a relatively benign CPI number with weaker than expected inflation.  Wednesday also saw a retail sales release which showed a decline in April and it was also accompanied by downward revisions for sales during the first quarter.  The inflation and sales releases are dovish indicators and Treasury yields subsequently declined after those Wednesday releases, recouping some of the sell-off in rates that occurred after the hot PPI release early on Tuesday.  The next couple weeks are relatively light on the data front and the next Fed meeting on June 12 will be here before we know it.

Issuance

The IG primary market saw good activity on the week as 21 companies sold just over $28bln in new debt.  Syndicate desks are looking $25bln next week but that number could surprise to the upside as earnings season is winding down and there is no major economic data that will preclude issuers from tapping the market on any given day.  Year-to-date issuance stands at $719.8bln, well ahead of last year’s pace.

Flows

According to LSEG Lipper, for the week ended May 15, investment-grade bond funds reported a net outflow of -$1.04bln.  IG funds have seen positive flows 18 of the past 20 weeks.  YTD flows into IG stand at +$33.6bln.

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 stuck to a tight range during the week and are looking as though they will finish the period relatively unchanged from where they began.  The Bloomberg US Corporate Bond Index closed at 87 on Thursday May 2 after closing the week prior at the same level.  The 10yr Treasury yield is lower this week, trading at 4.51% this Friday afternoon after closing last week at 4.66%. Through Thursday, the corporate bond index YTD total return was -2.20% while the yield-to-maturity for the benchmark was 5.60% relative to its 5-year average of 3.67%.

Economics

It was a busy week for data with the two main events being the FOMC on Wednesday and the April payroll report on Friday.  The Fed release was in-line with expectations although Chairman Powell was clear that the committee does not anticipate additional rate hikes. The prospect for additional hikes was a theme that some investors had been latching onto in recent weeks so it was reassuring for the dovish camp to hear Powell address this specifically.  The Fed then got the type of data point they have been looking for with Friday’s jobs report: average hourly earnings came in cooler than expectations and job gains for April slowed to 175,000 versus the survey estimate of 240,000.  This was the lightest monthly print for payrolls since October of last year.  Next week is an extremely light week for economic data with the only meaningful prints in the latter half of the week with jobless claims and consumer confidence releases.

Issuance

It was a reasonably busy week for issuance considering the backdrop of earnings and the FOMC meeting as IG-rated companies printed $19bln of new debt.  Syndicate desks are looking for a busier week next week with an estimate of $30bln.  The window for new issuance will start to open up as earnings season winds down and with the lack of the aforementioned “market-moving” economic releases.  Year-to-date issuance stands at $636bln.

Flows

According to LSEG Lipper, for the week ended May 1, investment-grade bond funds reported a net inflow of +$812mm.  IG funds have seen positive flows 17 of the past 18 weeks.  YTD flows into IG stand at +$33.7bln.

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.