Category: Investment Grade Weekly

Investment grade credit spreads were pushed wider to start the week after a deluge of new issue supply on Tuesday.  By mid-Wednesday morning spreads were trending tighter after investors had a chance to digest issuance and now this Friday morning it is clear that the market is set to finish the week better than last which sets up well for another bout of new issue on Monday. The Bloomberg US Corporate Bond Index closed at 143 on Thursday September 8 after having closed the week prior at 145. The 10yr Treasury closed last week at 3.19% and is trading at 3.27% as we go to print on Friday morning.  Through Thursday the Corporate Index had a negative YTD total return of -15.02% while the YTD S&P500 Index return was -15.12% and the Nasdaq Composite Index return was -23.74%.

The FOMC does not meet until September 21 but next Tuesday will see the release of the latest CPI figure which is a big data point that will guide the Fed in its choice of a 50bp or 75bp hike 12 days from now.  Other central banks joined the rate-hike party this week.  On Wednesday, the Bank of Canada increased its target for the overnight rate by 75bps to 3.25%, a 14-year high for that country.  The European Central Bank followed suit on Thursday by increasing its deposit rate from 0% to 0.75%.  The ECB also slashed its forecast of economic growth in 2023 to a mere 0.9%.  Critics believe this growth target is overly optimistic and that the European economy will find itself in recession sooner rather than later and we at CAM agree with that view.

The holiday shortened week saw 31 companies sell over $51bln of new debt.  The street is looking for $35-40bln of issuance next week and with CPI at 8:30am on Tuesday we would expect a tidal wave of issuance on Monday if the market tone is receptive as companies look to get ahead of that economic print.  Issuance right now is very much day-to-day depending on the market’s appetite for risk on any given day as well as being highly dependent on the increasingly volatile Treasury market.

Per data compiled by Wells Fargo, outflows moderated this week of September 1–7 to -$0.9bln which brings the year-to-date total to -$111.2bln.  This was the second consecutive week of modest outflows on the back of a 5 week streak of inflows for the asset class.

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. 

Investment grade credit spreads drifted wider in the first half of the week and then traded tighter amid low volume into Friday morning.  After Fed Chair Jerome Powell spoke on Friday the street tried to take spreads wider but trading volume has remained low with the market in its end-of-summer seasonal slow-down.  The Bloomberg US Corporate Bond Index closed at 134 on Thursday August 25 after having closed the week prior at 136. After the dust settles the index is likely to finish the week unchanged or close to it.  The 10yr Treasury closed last week at 2.97% and is trading at 3.05% as we go to print on Friday morning.  Through Thursday the Corporate Index had a negative YTD total return of -13.1% while the YTD S&P500 Index return was -11% and the Nasdaq Composite Index return was -18.78%.

Economic data this week was light relative to the last two weeks and much of the week was spent with investors anticipating Powell’s Friday morning speech.  The speech was less than 10 minutes in length, but that was all the market needed to understand that the Fed is committed to using restrictive policy to reduce inflation even if it causes some pain for households and businesses.  Chair Powell said 75bps is still on the table for the Fed’s September 21 FOMC rate decision.

There was no new issuance this week.  It wouldn’t have been surprising if there would have been a deal or two on Monday or Tuesday but Monday was a volatile day for stocks and risk assets in general so issuers decided to pack it in for the week, and probably for the summer.  We anticipate no issuance again next week before things start to pick up again after Labor Day.  September is expected to see a high volume of issuance.

Investment grade credit reported a fifth straight week of inflows.  Per data compiled by Wells Fargo, inflows for the week of August 18–24 were +$2.8bln which brings the year-to-date total to -$108.9bln.

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. 

Investment grade credit spreads were generally tighter to start the week and then drifted wider in the second half.  The Bloomberg US Corporate Bond Index closed at 134 on Thursday August 18 after having closed the week prior at 132.  The 10yr Treasury closed last week at 2.83% and is trading at 2.95% as we go to print on Friday morning.  Economic data painted differing pictures this week.  The Empire Manufacturing survey on Monday was absolutely dreadful and caused investors to ponder the impact of slowing growth in an economically important region.  Housing starts declined for the sixth consecutive month and mortgage applications came in lighter than estimates.  On the bright side, July retail sales showed some encouraging signs.  Fed speakers throughout the week did their best to remind investors that they will do whatever it takes to lower inflation to 2%.  This is not an opinion piece, but since you asked, it is our view that the market is much too complacent about the Fed and there seems to be this prevailing belief that the Fed will be ready and willing to immediately slash the Funds Rate in 2023 at the first hint of economic weakness.  We simply disagree with this view and believe that the Fed is willing to inflict pain on equities and riskier assets in its quest to quell inflation. Through Thursday the Corporate Index had a negative YTD total return of -12.23% while the YTD S&P500 Index return was -9.22% and the Nasdaq Composite Index return was -16.69%.

Primary issuance was in line with expectations this week as more than $22bln of new debt was brought to market.  As pointed out by Bloomberg, this was the fifth week in a row where actual volume met or exceeded concensus expectations, a good sign for the health of the primary market.  Issuance will likely slow significantly until after Labor day at which point we expect substantial issuance if investors remain receptive.  There has been $912bln of new issuance YTD which trails 2021’s pace by 5% according to data compiled by Bloomberg.

Investment grade credit reported a fourth straight week of inflows.  Per data compiled by Wells Fargo, inflows for the week of August 11–17 were +$3.9bln which brings the year-to-date total to -$111.7bln.

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. 

Investment grade credit performed strongly this week as spreads moved tighter throughout.  The Bloomberg US Corporate Bond Index closed at 135 on Thursday August 11 after having closed the week prior at 141.  The 10yr Treasury closed last week at 2.83% and is trading at 2.85% as we go to print on Friday afternoon.  On the economic front, the big news of the week was Wednesday’s CPI print which was the first data point that showed inflation might be slowing.  Both headline and core inflation came in below expectations and stocks rallied on the news but most market participants agree that the battle is far from over; but it is an encouraging sign nonetheless.  Through Thursday the Corporate Index had a negative YTD total return of -12.4% while the YTD S&P500 Index return was -10.89% and the Nasdaq Composite Index return was -17.31%.

Primary issuance continued to impress this week, although at a more subdued pace than the previous two weeks.  Just over $30bln of new debt was brought to market.  The primary market typically experiences a seasonal slowdown in the second half of August before things pick back up after Labor day.  There has been $890bln of new issuance YTD which trails 2021’s pace by 6% according to data compiled by Bloomberg.

Investment grade credit reported a second straight week of strong inflows.  Per data compiled by Wells Fargo, inflows for the week of August 4–10 were +$4.7bln which brings the year-to-date total to -$115.3bln.

Investment grade credit performance was mixed again this week.  It looked like spreads would finish the week better bid but then the monthly payroll report hit on Friday morning.  Things are volatile as we go to print so it is merely a guess but we could finish the week somewhere in the neighborhood of unchanged to modestly wider amid a risk off tone on the back of payrolls.  The Bloomberg US Corporate Bond Index closed at 141 on Thursday August 4 after having closed the week prior at 144.  The 10yr Treasury has been all over the map this week.  The 10yr closed last week at 2.65%, closed Monday of this week at 2.57% and is now up at 2.84% mid-Friday morning.  Fed speakers spent much of this week reinforcing their hawkish views and commitment to tame inflation and then a strong jobs report fueled a 14 basis point sell-off in 10s this morning.  Front-end rates are getting hit even harder with the 2-year Treasury up nearly 18 basis points as we go to print.  The short and intermediate portions of the Treasury curve are now more inverted than they have been at any point in this cycle. Through Thursday the Corporate Index had a negative YTD total return of -11.35% while the YTD S&P500 Index return was -12.11% and the Nasdaq Composite Index return was -18.88%.

Primary issuance was big this week with $56bln in new debt brought to market which exceeded even the highest of expectations.  There was issuance from high quality household names such as Apple and Intel and Meta Platforms (fka Facebook) printed its inaugural bond deal of $10bln.  Street estimates are looking for $20-25bln in issuance next week.  There has been $859bln of new issuance YTD which trails 2021’s pace by 5% according to data compiled by Bloomberg.

Investment grade credit saw its highest weekly inflow in almost a year.  Per data compiled by Wells Fargo, inflows for the week of July 28–August 3 were +$6.5bln which brings the year-to-date total to -$119.9bln.

Investment grade credit performance was mixed this week and it looks as though spreads will finish a basis point or two wider.  The Bloomberg US Corporate Bond Index closed at 146 on Thursday July 28 after having closed the week prior at 144.  The market is better bid as we go to print this Friday morning.  The 10yr Treasury is yielding 2.69% after having closed the week prior at 2.75%.  Economic data was varied throughout the week and it flowed through to Treasury curves in the form of volatility.  The FOMC delivered a 75bps rate hike on Wednesday, in line with expectations.  On Thursday, we got an exceptionally weak GDP print relative to expectations.  The economy shrank for a second straight quarter but most economists were hesitant to call it a full blow recession and instead the preference at this point is to refer to it as a slowing of economic activity.  On Friday the data was more supportive of the economy but less supportive of the Fed and its quest to tame inflation.  The Labor Department’s employment cost index and the Commerce Department’s personal consumption price index both posted increases that were larger than forecasts.  Through Thursday the Corporate Index had a negative YTD total return of -11.80% while the YTD S&P500 Index return was -13.81% and the Nasdaq Composite Index return was -21.92%.

The primary market saw $18.6bln of issuance this week which was on the screws relative to the $15-20bln estimate.  The pace of issuance should see a slight acceleration next week so long as the market remains receptive.  Street estimates are looking for $25-30bln in issuance which would be considered a fairly brisk week for early August.  Expectations for supply during August are in the $70-$80bln range relative to 2021 which saw $86bln in issuance.  There has been $803bln of new issuance YTD which trails 2021’s pace by 7% according to data compiled by Bloomberg.

Investment grade credit saw an inflow this week, breaking a 21-week streak of outflows.  Per data compiled by Wells Fargo, outflows for the week of July 21–27 were +$0.7bln which brings the year-to-date total to -$126.4bln.

Investment grade credit has had a week of mixed performance.  The Bloomberg US Corporate Bond Index closed at 149 on Thursday June 23 after having closed the week prior at 144.  The market tone has been good for risk assets on Friday and it looks likely that spreads will finish the week on a positive note.  The 10yr Treasury is yielding 3.12% as we go to print after having closed the week prior at 3.23%.  The 10yr is down substantially from just 10 days ago when it closed at 3.47% on June 14.  Through Thursday the Corporate Index had a negative YTD total return of -14.42% while the YTD S&P500 Index return was -19.77% and the Nasdaq Composite Index return was -27.93%.

New issue activity returned this week but was relatively low volume as IG issuers brought just over $10bln in new debt to market. The consensus expectation is that there will be be about $15bln in issuance next week but it would not surprise us to see less or more than that figure, depending on market conditions.  There has been $708bln of new issuance YTD which trails 2021’s pace by 9% according to data compiled by Bloomberg.  It looks as though June will fall short of the $90bln estimate for new debt, with just $61bln priced thus far during the month.

Investment grade credit saw another outflow on the week.  Per data compiled by Wells Fargo, outflows for the week of June 16–June 22 were -$9.0bln which brings the year-to-date total to -$107.2bln.

It was a wild ride for risk assets during the week and credit spreads will finish the week wider.  The Bloomberg US Corporate Bond Index closed at 144 on Thursday June 16 after having closed the week prior at 136.  The tape has been mixed throughout the day on Friday and is pointing toward a close that looks as though it will be unchanged from Thursday.  The 10yr Treasury is yielding 3.23% as we go to print after having closed the week prior at 3.16% as rates sold off on the back of last Friday’s CPI print which showed that inflation has yet to show signs of slowing.  The 10yr was as low as 2.75% during the last week of May so it has been a significant move in a short timeframe.  The tape was particularly bad for equities this week as there was a brief relief rally on Wednesday post-FOMC but then a violent sell-off on Thursday.  The major indices have been modestly green throughout the day on Friday.  Through Thursday the Corporate Index had a negative YTD total return of -14.99% while the YTD S&P500 Index return was -22.5% and the Nasdaq Composite Index return was -31.6%.

The Federal Reserve delivered a 75bp Fed Funds rate hike on Thursday in its goal to curtail inflation.  It was the largest such rate increase since 1994.  The Fed may well deliver another hike of that magnitude at its July 27 meeting but that depends largely on the economic data between now and then.

The new issue calendar was non-existent this week as precisely $0 in new bonds were issued.  It was the first week of no issuance in 2022 and the first week with no new bonds since 2020 according to Bloomberg. The expectation is that there will be some modest issuance next week if the market tone is constructive.  As we often like to say, the IG market is essentially never closed but it is not uncommon for issuers to wait for a positive tone to issue with the hope that there will be enough investor demand to offer them favorable pricing.  There has been $697bln of new issuance YTD which trails 2021’s pace by 5% according to data compiled by Bloomberg.

Investment grade credit saw a sizeable outflow on the week.  Per data compiled by Wells Fargo, outflows for the week of June 9–June 15 were -$6.4bln which brings the year-to-date total to -$98.2bln.

Credit spreads will finish the week meaningfully tighter for the second week in a row.  The Bloomberg US Corporate Bond Index closed at 149 two weeks ago and 136 last Friday while the index closed this Thursday at an OAS of 130. Spreads have drifted wider during the trading day on Friday so we may close the week slightly wide of 130 but spreads will still finish the week better than where they started.  The 10yr Treasury is yielding 2.95% as we go to print after having closed the week prior at 2.74%.  IG corporate bonds posted their first monthly positive return of the year for May but the Corporate Index had a negative YTD total return of -11.79% through Thursday while the YTD S&P500 Index return was -12.11% and the Nasdaq Composite Index return was -21.3%.

Stocks traded lower on Friday on the back of payrolls data that was viewed as strong enough for the Fed to continue with its likely plan to raise Fed Funds by 50bps at its June meeting.  The next big economic release to watch is CPI on June 10 with the FOMC rate decision to follow on June 15.

The new issue calendar was robust this week considering Memorial Day made for a shortened week.  Issuers priced $29.9bln in new debt which was at the high end of estimates –financial institutions led the way with 75% of weekly volume.  Next week should be another active one for issuance especially if credit spreads continue their positive trajectory.

Investment grade posted another modest outflow this week.  Per data compiled by Wells Fargo, outflows for the week of May 26–June 1 were -$1.1bln which brings the year-to-date total to -$69.4bln.