Category: Investment Grade Weekly

Spreads were relatively unchanged during the week as the index sat 7bps off its tightest levels of the year through Thursday’s close.  The Bloomberg US Corporate Bond Index closed at 96 on Thursday March 8 after having closed the week prior at 97.  The 10yr is trading at 4.07% this Friday morning after closing last week at 4.18%. Through Thursday, the Investment Grade Corporate Index YTD total return was -0.54%.

Economics

The two highlights of the week were Jay Powell’s testimony to Congress on Wednesday morning and the nonfarm payrolls report on Friday.  Chairman Powell stayed on message while addressing lawmakers.  He continued to emphasize the Fed’s commitment to data dependency while indicating it is likely that the FOMC will begin to cut rates in 2024.  The jobs number on Friday was the type of print that had something for both the “cut now camp” and the “no cuts in 2024 camp.”  The report showed that the U.S. unemployment rate climbed to a two year high for the month of February while wage growth slowed.  Still, payrolls continued to grow at a healthy rate and the unemployment rate remains quite low by historical standards.  Post jobs report, interest rate futures were fully pricing in a 25bp rate cut in June and a total of 100bps by the end of 2024.

Issuance

In what seems to be a recurring theme, it was another banner week for issuance as more than $50bln of new debt priced for the third consecutive week.  2024 continues to be the busiest year in the history of the investment grade primary market with supply running at ~$440bln YTD, which is +30% YoY.  Next week is expected to feature brisk activity as well with estimates looking for $30-$35bln of new debt.

Flows

According to LSEG Lipper, for the week ended March 6, investment-grade bond funds reported a net inflow of +$4.5bln.  This was the twelfth consecutive weekly inflow for IG funds and the largest inflow in over a 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.

Another week is in the books and once again it is a year-to-date tight for credit spreads.  The Bloomberg US Corporate Bond Index closed at 89 on Thursday February 22 after having closed the week prior at 92.  The 10yr is trading at 4.26% this Friday morning after closing last week at 4.28%. Through Thursday, the Investment Grade Corporate Index YTD total return was -1.76%.

Economics

It was an extremely light week for economic data.  Perhaps the highlight of the week was the release of the Fed minutes from the most recent meeting that highlighted consensus among policymakers about the risks of cutting rates too quickly.  Next week brings some more action with many data releases including GDP, Core PCE and Personal Spending.

Issuance

It was a huge week for issuance even despite the fact that the market was closed on Monday.  More than $53bln of new debt priced through Thursday and there is a rare large deal in the market on Friday that is likely to push the total past $60bln.  Next week is expected to be reasonably busy with syndicate desks estimating about $30bln of new issuance.

Flows

According to LSEG Lipper, for the week ended February 21, investment-grade bond funds reported a net inflow of +$2.27bln.  This was the tenth consecutive weekly inflow for IG funds.

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 back at the tightest levels of the year.  The Bloomberg US Corporate Bond Index closed at 92 on Thursday February 15 after having closed the week prior at 95.  The 10yr is trading at 4.30% this Friday morning after closing last week at 4.18%. Through Thursday, the Investment Grade Corporate Index YTD total return was -1.63%.

Economics

There was a boatload of data this week and it resulted in volatility in equities and Treasuries. The three major highlights are as follows: first, CPI came in hotter than expected on Tuesday morning which sent rates higher and stocks lower. Thursday morning was for the doves as retail sales data came in much weaker than expected –this sent rates lower.  Finally on Friday morning, a data release showed that the producer price index rose more than expected.  The PPI release sent rates to their highest levels of the week and stocks had a modestly negative reaction.  At the end of the this note we have attached a weekly price graph of the 2-year Treasury as well as the Dow Jones Industrial average to illustrate some of the volatility that occurred in those markets during the week.  As far as investment grade credit was concerned, the asset class fared well during the week as spreads shot tighter but there is a cautious tone in the market amid higher Treasury yields as we go to print this Friday morning.  Next week is a holiday shortened week that is light on economic data.  We are of the mind that the price action this week was ultimately helpful as we felt that there was far too much consensus from market participants on imminent rate cuts at the March meeting.  The economic data has served to all but squash the prospect of a cut at the March 20 meeting and now we are seeing much more reasonable estimates from market prognosticators that the first rate cut may be delayed until the May, June or July meetings.  We still don’t think it is a lock that the Fed cuts rates at all this year and we cannot discount entirely the possibility that inflation data remains sticky, pushing the first cut into 2025 and thus increasing the odds of a landing that isn’t necessarily hard but certainly isn’t soft.

Issuance

It was another active week for issuance as borrowers priced more than $37bln in new debt.  Bristol Myers led the way as it printed $13bln across 9 tranches to fund its acquisitions of Karuna Therapeutics and Rayzebio.  Next week is expected to be especially busy even despite the fact that the market is closed on Monday.  Estimates are calling for as much as $45bln in new debt when the market reconvenes after Presidents Day.

Flows

According to LSEG Lipper, for the week ended February 14, investment-grade bond funds reported a net inflow of +$2.28bln.  This was the ninth consecutive weekly inflow for IG funds.

U.S. 2 Year Treasury Last 5 Days:

Dow Jones Industrial Average Last 5 Days:

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 once again trading at the tightest levels of the year as we go to print.  The Bloomberg US Corporate Bond Index closed at 93 on Thursday January 25 after having closed the week prior at 95.  The 10yr is trading at 4.16% this Friday morning after closing last week at 4.12% –the 10yr yield is 24bps higher than where it began 2024.  Through Thursday, the Corporate Index YTD total return was -0.99%.

Economics

It was a robust week of data and central bank meetings, although none of the releases resulted in large market swings.  The Bank of Canada held its key rate at 5% on Wednesday while the ECB held its deposit rate at 4% for the third consecutive meeting on Thursday.  In the U.S. the most anticipated release was Friday morning when the Federal Reserve’s preferred inflation measure hit the tape. PCE rose 0.2% in December from the previous month after posting a 0.1% decline in November.  It showed that prices were up 2.6% on the year, which is much lower than the reading at the end of 2022.  Bottom line, the data is showing significant progress in the war against inflation.  Next week, all eyes are on the FOMC which releases its first rate decision of the year on Wednesday.  Market prognosticators are looking for the Fed to hold steady but it is the commentary around the timing of easing that could impact global markets.

Issuance

Issuance this week was not paltry but it was underwhelming compared to the consensus estimate as companies priced $18.55bln in new debt relative to expectations of $25bln.  There is one deal pending on Friday morning with its size to-be-determined which will add to the monthly total through Thursday of $167.8bln.  Recall that the all-time record for the month of January was $175bln which was set in 2017.  This record is well within striking distance as preliminary estimates for issuance next week are $20-$25bln.

Flows

According to Refinitiv Lipper, for the week ended January 24, investment-grade bond funds reported a net inflow of +$1.24bln.  This was the sixth consecutive weekly inflow for IG funds.

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 looking to finish the week on a strong note, trading at the tightest levels of the year as we go to print.  The Bloomberg US Corporate Bond Index closed at 95 on Thursday January 18 after having closed the week prior at 97.  The 10yr is trading a 4.16% this Friday morning, up sharply on the week after having closed the week prior at 3.94%.  The benchmark rate is now trading at its highest yield of the New Year.  Through Thursday, the Corporate Index YTD total return was -1.35%.

Economics

It was a busy week for economic data with several market moving prints.  December retail sales data on Wednesday came in with a larger increase than expected, fueling higher Treasury yields.  On Friday, consumer sentiment rose to its highest level since January 2021, far in excess of the estimate.  The data also showed that consumers expect prices will increase at an annual rate of 2.9% over the next year, down from 3.1% a month earlier.  So far in 2024, the data has served to cool market expectations of near term Fed rate cuts.  The market went from anticipating as many as 6 cuts in 2024 but now the expectation has shifted to 3 or 4 cuts based on interest rates futures.  The next 10 days will be busy from a data perspective, culminating in a FOMC meeting on January 31.

Issuance

It was a huge week of issuance especially considering that the market was closed on Monday in observance of Martin Luther King Day.  With no new deals on Friday, issuers managed to print >$49bln of new debt in three days bring supply for the month of January to nearly $150bln.  Investor demand has been strong and new issue concessions have shrunk in concert as investors have gobbled up new paper leaving most new issues to immediately trade better in the secondary market.  Another strong week could easily see this January surpass the all-time January record of $175bln that was set in 2017.

Flows

According to Refinitiv Lipper, for the week ended January 17, investment-grade bond funds reported a net inflow of +$227.3mm.  This was the fifth consecutive weekly inflow for IG funds.

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 will finish the week a touch wider but levels remain near the tights of 2023.  The Bloomberg US Corporate Bond Index closed at 102 on Thursday December 21 after having closed the week prior at 100.  The 10yr is trading a 3.895% as we go to print Friday afternoon, which is only a single basis point lower from its close the week prior.  Through Thursday, the Corporate Index YTD total return was +7.95%.

Economics

It was another heavy week of economic releases.  The most meaningful print of the week was Core PCE on Friday.  Recall that this is the Fed’s preferred inflation gauge.  The release showed that PCE rose by a mere 0.1% in November.  The full year release showed that underlying inflation advanced by 3.2% over the course of the past 12 months while the six month annualized number showed that the core metric rose by just 1.9%.  According to sources compiled by Bloomberg, this is the first time in more than three years that this six month measure came in below the Fed’s 2% target.

Issuance

Issuance was extremely light on the week coming in at $0.7bln as just one issuer priced a single 5yr tranche of debt on Monday.  January sales are expected to be robust with underwriters predicting monthly volume of around $160bln.  The first week of business in 2024 is likely to be quite busy so long as funding conditions remain favorable.  For context, the first week of 2023 saw issuers price almost $60bln in new debt.

Flows

According to Refinitiv Lipper, for the week ended December 20, investment-grade bond funds reported a net inflow of +$1.6bln.  Flows for the full year are net positive +$13.4bln.

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 will finish the week on a strong note after closing Thursday evening at their tightest levels of 2023.  The Bloomberg US Corporate Bond Index closed at 99 on Thursday December 14 after having closed the week prior at 105.  The 10yr is trading a 3.947% as we go to print Friday morning, which is a 28 basis point move lower from its close the week prior.  Through Thursday, the Corporate Index YTD total return was +8.13%.

Economics

It was an action packed week for economic releases but nothing impacted the market more than the FOMC and Chair Powell’s press conference on Wednesday.  The Fed was meaningfully more dovish than expected in its messaging and risk assets were happy to take it and turn it into a rally for both stocks and bonds.  We were surprised that Chair Powell did not take the opportunity to push back against easing financial conditions; the updated dot plot showed that the consensus view of the committee is now looking for three rate cuts in 2024 instead of two. What seems to be missing in much of media commentary surrounding this Fed release is that, while the dot plot is reasonably accurate over short time horizons of 3-6 months, it has been consistently wrong in its ability to predict where rates will be over 1 or 2 year time horizons.  Investors should think of the dot plot as a chart that shows where a majority of the committee members “hope” rates will be in a year or two.  Additionally, while rate cuts sound great in principal it is important for investors to remember that we have come a long way in a very short period of time which increases the risk that something in the financial system will go awry (even more so than it already has).  Fed Funds today are +525bps and at their highest level in 22 years.  If the Fed delivers 3 cuts in 2024 amounting to a total of 75bps we are still dealing with a 450bps policy rate that is meaningfully higher than it was at any point in the past two decades.   Our view remains that a higher-for-longer policy rate will eventually cause a “landing” that is not entirely soft in nature, although the timing of a recession remains extremely difficult to predict.  We also do not believe that a modest recession is necessarily a bad thing.  We believe that the Fed simply has to engineer some softness in the labor market in order to adequately tame inflation.  While there has been progress on the inflation front and there has been some modest softening of the labor market, average hourly earnings have remained strong and the unemployment rate is still exceptionally low.  Bottom line, the Fed still has more work to do and Federal Reserve Bank of New York President John Williams wasted little time on Friday morning when he pushed back against market participants, saying it’s too early for officials to begin thinking about cutting rates as soon as March:

“The market in a way is reacting very strongly, maybe more strongly, than what we are showing in terms of our projections.”

Issuance

Issuance was underwhelming this week as borrowers priced just under $2.5bln of new debt.  December volume stands at $23bln which is a decent haul for a seasonally slow month.  There is a chance that there could be some light issuance next week but in all likelihood the new issue calendar is close to being done for the year.

Flows

According to Refinitiv Lipper, for the week ended December 13, investment-grade bond funds reported a net outflow of -$550mm.  Flows for the full year are net positive +$11.8bln.

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 are poised to finish the week modestly wider.  The Bloomberg US Corporate Bond Index closed at 106 on Thursday December 7 after having closed the week prior at 105.  The 10yr is trading a 4.23% as we go to print Friday morning, just 3 basis points higher than its close the week prior.  Through Thursday, the Corporate Index YTD total return was +5.59%.

Economics

The most meaningful data release just occurred this Friday morning with the November payroll report.  It was a strong report that showed that the economy added more jobs than consensus estimates while the unemployment rate ticked lower to 3.7%.  Traders had become increasingly more aligned in the belief that Fed rate cuts were eminent in the first half of 2024.  This print along with continued labor market resilience in the future could bring the higher-for-longer narrative back to the forefront.  Indeed, Treasury yields inched higher across the board after the NFP release.  The 2yr was higher by 9bps as we went to print while the 30yr was higher by 5bps.  Next week is the last big week of the year for economic data with CPI on Tuesday, the final FOMC rate decision of 2023 on Wednesday and retail sales data on Friday.

Issuance

It was a seasonally strong week of issuance as borrowers priced more than $20bln of new debt, eclipsing the high end of the estimated range.  Next week syndicate desks are looking for $10bln in volume with most of that occurring on Monday.

Flows

According to Refinitiv Lipper, for the week ended December 6, investment-grade bond funds reported a net inflow of +$633.3mm.  Flows for the full year are net positive +$12.3bln.

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 will finish the week tighter and are currently at their tightest levels of 2023.  The Bloomberg US Corporate Bond Index closed at 104 on Thursday November 30 after having closed the week prior at 109.  The 10yr is trading a 4.29% as we go to print Friday morning, 18 basis points lower than its close the week prior.  Through Thursday, the Corporate Index YTD total return was +4.01%.  The month of November was particularly strong for spreads as the index has moved 25 basis points tighter since the end of October.  The performance of the rates market was also strong as Treasuries’ November gain was the largest since 2008.[i]  Monthly yield changes for UST benchmarks were as follows:

• 2Y -41bp
• 5Y -59bp
• 10Y -60bp
• 30Y -60bp

Economics

The calendar for economic data was reasonably busy this week.  The biggest print of the week is debatable but it was probably initial jobless claims on Thursday which came in exactly in line with expectations.  Jobless claims have been top of mind ever since the October NFP report that missed expectations to the downside.  There were other meaningful releases during the week, but none of the numbers were out of consensus enough to take the market by surprise: New Home Sales, Consumer Confidence, Core PCE, Personal Consumption, and Personal Income.  Not to be lost in the shuffle was Thursday’s 3Q US GDP release that showed the economy grew at a 5.2% annual rate at the end of that quarter.  While this is backward looking data, it is a long way from a recessionary GDP release.  The first half of next week is pretty light but the action starts to pick up on Thursday with jobless claims and then the November NFP report on Friday morning.

Issuance

It was a solid week of issuance as borrowers printed $17.5bln of new debt which was the midpoint of the estimated range.  Next week syndicate desks are looking for $15-$20bln of new issue volume.  In all likelihood the first week of December will be the busiest week of the month before the primary market starts to slow as the calendar moves closer to the holidays and year-end.

Flows

According to Refinitiv Lipper, for the week ended November 29, investment-grade bond funds reported a net inflow of +$324.8mm.  Flows for the full year are net positive +$12.357bln.

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.

[i]Bloomberg, December 1 2023, “Treasuries’ November Gain Biggest Since 2008: Rates Monthly”

Credit spreads are looking to finish the week tighter for the third time in a row.  The Bloomberg US Corporate Bond Index closed at 124 on Thursday November 9 after having closed the week prior at 125.  The 10yr is trading a 4.59% as we go to print Friday morning, just 2 basis points higher than its close the week prior.  Through Thursday, the Corporate Index YTD total return was +0.28%.

Economics

It was a relatively light week for market moving data.  Arguably the most meaningful print of the week was consumer sentiment data that was released on Friday morning.  The data showed that sentiment slipped to a six-month low but that consumer long-term inflation expectations increased to the highest level since 2011.  The Fed will likely be displeased with this development as consumer views on inflation can be a self-fulfilling prophecy.  Next week will be much busier on the data front with several notable releases, including the consumer price index, producer price index and retail sales.

Issuance

It was a very solid week for new issuance as borrowers printed $43.925bln in new debt, besting the high end of expectations that were calling for $40bln.  In total, 30 companies tapped the debt markets during the week.  Next week should be relatively active as well and estimates are looking for $25-$30bln in debt but issuers will have to navigate a busy calendar of economic data.  If that data results in Treasury and/or credit spread volatility then it could make issuance more or less attractive for borrowers.

Flows

According to Refinitiv Lipper, for the week ended November 8, investment-grade bond funds reported a net outflow of -$1.48bln.  Flows for the full year are net positive +$12.187bln.

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.