Category: Investment Grade Weekly

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.

Credit spreads battled through some volatility this week before moving tighter near the end of the period.  The Bloomberg US Corporate Bond Index closed at 89 on Thursday April 25 after closing the week prior at 92.  The 10yr Treasury yield is up slightly on the week, trading at 4.67% this Friday afternoon after closing last week at 4.62%. Through Thursday, the corporate bond index YTD total return was -3.22% while the yield-to-maturity for the benchmark was 5.75% relative to its 5-year average of 3.66%.

Economics

Most of the big economic news of the week occurred in the second half of the period.  Durable goods orders were released on Wednesday with a headline number for March that was in-line with consensus but accompanied by a significant revision downward in February’s number.  GDP data on Thursday was very weak relative to expectations, coming in at +1.6% versus the survey of +2.5% which caused a sizeable selloff in equities and ironically sent Treasury yields higher as the inflationary component of GDP advanced higher relative to expectations.  Friday saw the release of personal spending data as well as PCE data with both coming in hot versus economist estimates.  Taking it all together, there was something for both hawks and doves but none of these numbers are likely to be a game changer for the Fed in its zeal to cut rates.  The FOMC releases its May rate decision next Wednesday and interest rate futures are currently implying just a 2.6% probability of a cut as we go to print this Friday afternoon.  The ride on the road to policy easing continues to be a long and complicated journey.

Issuance

It was the slowest week of the year for new issue with only four borrowers tapping the market for a total of $11.6bln.  The consensus estimate of $20-$25bln was obviously too optimistic especially considering 32% of the S&P 500 reported earnings this week.  Next week is another busy one for earnings and with a Fed meeting on Wednesday prognosticators are only looking for $15bln in new supply.  Year-to-date issuance stands at $616.8bln, up >40% relative to 2023.

Flows

According to LSEG Lipper, for the week ended April 24, investment-grade bond funds reported a net outflow of -$607mm.  This was the first outflow of 2024, breaking a streak of 18 consecutive weeks of inflow for IG funds.  YTD flows into IG stand at +$32.9bln.

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.

Spreads finally took a breather this week as the market moved modestly wider throughout the period.  The Bloomberg US Corporate Bond Index closed at 92 on Thursday April 18 after closing the week prior at 89.  The 10yr Treasury yield is higher again this week and is trading at 4.63% this Friday morning after closing last week at 4.52%. Higher Treasury yields have been a headwind for IG returns so far this year –through Thursday, the index YTD total return was -3.07% while the yield-to-maturity for the benchmark was 5.73% relative to its 5-year average of 3.65%.

Economics

Things got off to a hot start right away on Monday morning as March retail sales data beat expectations in a big way.  Some economists have argued that an early Easter may have pulled some spending forward from April into March but there is no denying that it was a very solid number and yet another data point showing a resilient economy. Federal Reserve chairman Jerome Powell may finally be coming around to the realization that the Fed will have difficulty justifying near term rate cuts.  At an economic forum on Tuesday, Powell commented on rate cuts: “The recent data have clearly not given us greater confidence and indicate that it is likely to take longer than expected to achieve that confidence.” Not all the data was rosy this week as Thursday’s existing home sales release showed a 4.3% decline from February, the biggest monthly drop in over a year.  Additionally, higher Treasury yields caused the average rate on the standard 30-year fixed rate mortgage to surge to 7.1%. Next week we get plenty of data with the grand finale on Friday morning when Core PCE will hit the tape.

Issuance

Issuance was on the screws relative to estimates on the week as volume came in at just over $31bln, although there was not much diversity with the financial sector accounting for 90% of that number.  Syndicate desks are looking for $20-$25bln of new bonds next week.  Year-to-date issuance stands at $605.2bln, up +42% relative to 2023.  It “feels” like new issue concessions showed some improvement on the week but the reality is that it has not yet shown up in the numbers.  Even still, data did show that 66% of deals priced this week rallied in the secondary market.

Flows

According to LSEG Lipper, for the week ended April 17, investment-grade bond funds reported a net inflow of +$170mm.  This was the 18^th consecutive weekly inflow for IG funds.  YTD flows into IG stand at +$33.5bln.

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.

Spreads inched tighter during the week with the Bloomberg US Corporate Bond Index at its narrowest level of the year.  The index closed at 87 on Thursday April 11 after having closed the week prior at 89.  The 10yr is trading at 4.52% this Friday morning after closing last week at 4.40%. Through Thursday, the index YTD total return was -2.40% while the yield-to-maturity for the benchmark was 5.62% relative to its 5-year average of 3.65%.

Economics

It was an active week for economic data with the highlight of the week being another firmer than anticipated CPI print on Wednesday.  This caused a sell-off in Treasuries with the 2-year leading the way as its yield finished the day 23bps higher.  At the end of Wednesday, rates across the board were at the highest levels of 2024 but have since come off the highs and the entire curve is rallying to the tune of about 10bps as we go to print this Friday morning.  These short term moves should not distract corporate bond investors from the bigger picture: this is an asset class that is well poised to deliver solid returns in the future, in our opinion.  This entire year we have been saying that we felt that the bar was quite high for the Fed to begin cutting rates because the economy was simply too strong and the economic data too good.  We were quite puzzled in January when interest rate futures were pricing 6 or 7 cuts despite a Fed dot plot that indicated 3 cuts at the median.  The market has now come around to our view with futures pricing just shy of 2 cuts in 2024 as of this Friday morning.  It is clear from its messaging that the Fed wants to cut and we know it is coming at some point.  We believe that cuts would be a positive for our strategy as we think that it would be an important catalyst for Treasury curves to regain some upward positive slope.  The Fed will cut when the data that it depends on will allow it to cut.  It is as simple as that.  In the interim, we believe that this backup in rates has created an opportunity for long term credit investors.  We would not be surprised if we were to look back a year or two from now and long for the yields that are available to corporate credit investors today.

Issuance

Issuance was in-line with estimates on the week as companies priced $20.2bln of new debt.  Next week dealers are estimating $30bln of new supply with banks leading the way as they report earnings and exit their blackout periods.  Year-to-date issuance stands at $573.7bln, up 39% relative to 2023.

Flows

According to LSEG Lipper, for the week ended April 10, investment-grade bond funds reported a net inflow of +$3.2bln.  This was the 17^th consecutive weekly inflow for IG funds.  YTD flows into IG stand at +$33.3bln.

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.

Spreads stuck to a tight range this week and are looking to finish the period at the narrowest levels of 2024.  The Bloomberg US Corporate Bond Index closed at 88 on Thursday March 21 after having closed the week prior at 89.  The 10yr is trading at 4.22% this Friday morning after closing last week at 4.31%. Through Thursday, the Investment Grade Corporate Index YTD total return was -1.00%.  The story remains the same: spreads are tight but yields are elevated.  The yield to maturity for the Bloomberg US Corporate Bond index as of Thursday evening was 5.34%.

Economics

It was a light week for economic data but an extremely busy week for central banks throughout the globe.  There were rate decisions from Australia, the BOJ, the BOE and of course the FOMC, among others.  Chairman Powell walked a tightrope in his press conference and the market interpreted the Fed release as slightly dovish.  The Fed made it clear that rate cuts are still on the agenda with its updated dot projections.  The market is currently coalescing around 3 cuts for a total of 75bps beginning at the June meeting.  This is far from certain in our view and only time (and ensuing economic data) will tell.  As of this morning, interest rate futures are implying a 65% chance of a cut in June.

Issuance

Issuance was in-line with estimates on the week as companies priced more than $27bln of new debt.  For the year, the torrid pace of issuance has now officially passed the half trillion mark, with 2024 setting a new record for how quickly $500bln was breached.  Next week dealers are estimating $20bln of new supply.  This number is certainly achievable, especially if Monday is busy, but we would not be surprised if the issuance tally is underwhelming relative to expectations.  It is typically a seasonally slow week and the bond market closes early on Friday leaving Monday and Tuesday as the most favorable days for new issue prints.

Flows

According to LSEG Lipper, for the week ended March 20, investment-grade bond funds reported a net inflow of +$1.4bln.  This was the 14^th consecutive weekly inflow for IG funds.  YTD flows into IG stand at +$23.9bln.

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.

Spreads moved tighter throughout the week.  The Bloomberg US Corporate Bond Index closed at 91 on Thursday March 15 after having closed the week prior at 95.  The 10yr is trading at 4.31% this Friday morning after closing last week at 4.07%. Through Thursday, the Investment Grade Corporate Index YTD total return was -1.40%.  Although spreads are near the tight end of their historical range, yields remain significantly higher than they have been in the recent past and meaningfully higher than they have been for most of the past two decades.  The yield to maturity for the Bloomberg US Corporate Bond index as of Thursday evening was 5.4%, relative to its 10 and 20-year averages of 3.49% and 4.15%, respectively.

Economics

It was a mixed week for economic data but, overall, the economy remains resilient and the job market hasn’t yet lost its luster.  On Tuesday, the core CPI gauge exceeded expectations for the second straight month.  Headline CPI was up +3.2% year over year in February, slightly ahead of the +3.1% recorded for January.  On Thursday, the data had something for both Hawks and Doves.  PPI came in hot with pries paid during the month of February exceeding estimates while an employment report showed that fewer people were applying for jobless benefits.  On the other side of the coin, tepid February retail sales data showed that consumer spending slowed relative to estimates.  Market expectations have continued to shift –last week at this time interest rate futures were showing that investors were looking for 3 or 4 rate cuts in 2024 while this week the consensus has shifted more toward only 3 cuts.  Next week is extremely light on the data front with the exception of the main event on Wednesday as all eyes will be on the FOMC rate decision.  The Fed will also release its first update to the vaunted dot plot since December of 2023.

Issuance

In was another solid week of issuance as companies priced over $37bln of new debt, in line with sell side estimates.  2024 continues to be the busiest year in the history of the investment grade primary market with supply running at ~$476bln YTD, which is +36% higher than 2023’s pace.  Next week is expected to see supply slow slightly with dealers estimating $25-$30bln of new supply.

Flows

According to LSEG Lipper, for the week ended March 13, investment-grade bond funds reported a net inflow of +$1.61bln.  This was the thirteenth consecutive weekly inflow for IG funds.  YTD flows into IG stand at +$22.5bln relative to +$13.1bln for the same period last year.  Demand for IG credit has been strong as investors look to lock-in yields ahead of potential Fed rate-cuts.

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.

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.