Category: Insight

(Bloomberg)  High Yield Market Highlights

• The US junk bond market is headed toward a third-straight weekly gain, with its current six-day winning streak the longest this year and yields dropping to 7.75%.
• It’s allowed yields for the riskiest part of the market, CCCs, to fall below 12% for the first time this year.
• They’ve fallen 21 basis points so far this week, on top of last week’s 31bp plunge, putting weekly returns at 0.64%.
• CCC notes have had positive returns for 11 consecutive sessions, the longest since June, as it’s the best-performing asset class in US fixed income.
• Spreads have dropped 15 basis points this week to 737, the tightest since May 2022.
• The junk market’s rally gained momentum after Fed Chair Powell told Congress that rate cuts are likely this year and recession risks are not elevated in the near term.
• Jobs data remains robust on the openings and unemployment claims front, ahead of this morning’s employment report for February.
• Steady yields and historically tight spreads across ratings continue to draw borrowers and investors into the market.
• Bloomberg Intelligence analysts Noel Hebert and Sam Geier predicted high-yield bond sales this month will range from 25b-$29b.
• While things may slow some ahead of the next Fed meeting, bankers are prepping to begin a debt sale for the leveraged buyout of Truist Financial’s insurance brokerage business as loans for the deal get done.
• Conversations with investors continue to indicate that yields of 7.8% in high yield and 5.3% in investment grade are attractive enough even though spreads are tight to support strong demand, Barclays’ Brad Rogoff and Dominique Toublan wrote in note this morning.

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.

(Bloomberg)  High Yield Market Highlights

• The broad rally in risk assets has propelled CCCs, the riskiest part of the junk bond market, to the top as the best performing asset class in February. Returns for the month were 1.7% after climbing for six consecutive sessions. The gains came after S&P 500 breached the 5,000 level and steadily climbed to close at an all-time high.
• CCC returns turned positive year-to-date for the first time in the last week of February, only to accelerate to rise as the best asset class for total returns in the US fixed income market.
• CCC yields tumbled 43 basis points in February to close at a nine-week low of 12.24% bucking the broader trend as BB yields rose 17 basis points to 6.65%. Single B yields barely moved to close at 7.64%.
• Broad macro economic data reiterated the narrative about strong and resilient growth amid a slower-than-expected decline in inflation. However, robust economic growth, against the backdrop of relatively stable inflation reading, bolstered risk assets across markets.
• The recent outperformance of lower-quality assets has coincided with large gains in some of the riskier and more speculative parts of the market, such as cryptocurrencies, Barclays analysts Brad Rogoff and Dominique Toublan wrote in a Friday note.
• Loose financial conditions continue to support risk-taking in the markets, they wrote.
• Though spreads are historically tight, yields are supporting strong demand, the analysts reiterated again this morning.
• Tight spreads, attractive yields and resilient economy have drawn US borrowers into the market powering a supply boom.
• February supply of almost $27b pushed the year-to-date tally to $58b, a 70% jump year-over year.
• New bond sales in February were up 86% over last February.

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.

(Bloomberg)  High Yield Market Highlights

• US junk bonds notched their biggest one-day gains in more than four weeks and are poised for a rebound off last week’s losses to score the biggest weekly gains in four, as equities hit an all-time high, driving spreads to a more than two-year low of 306 basis points.
• With the Federal Reserve signaling caution about its next move, credit markets remain quite “upbeat,” with strong “yield-driven” demand, Barclays analysts Brad Rogoff and Dominique Toublan wrote this morning.
• While inflation risks remain in focus, growth is resilient and corporate earnings are still strong across cyclicals and noncyclicals, they wrote, adding that higher yields continue to compress spreads.
• Dollar prices in the junk bond market are still low, making yields attractive to investors and supporting strong demand.
• Spreads were crushed across ratings, with BB spreads tumbling to 185 basis points, the lowest since Jan. 2020.
• Single B spreads plummeted to 278 basis points, the lowest since July 2007.
• CCCs spreads dropped to a more than eight week low of 778 basis points, the lowest since December.
• The gains were across the board as risk assets shrugged off inflation concerns and rallied on a resilient economy and strong labor market.
• Yields dropped seven basis points to 7.83% and spreads moved closer to 300 basis points.
• US borrowers are capitalizing on demand supported by low spreads and higher yields.
• The primary market has priced more than $4b in new bonds this week, putting issuance at $23b for the month.
• Year-to-date supply is at $54b, up 59% year-over-year.
• Robust corporate earnings, combined with strong macro data, have pushed back recession concerns and bolstered risk assets.

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.

(Bloomberg)  High Yield Market Highlights

• US junk bonds may end a three-week rally as they head to close the week with modest negative returns. Markets were jolted earlier this week when faster-than-expected inflation caused the biggest one-day loss in four months.
• The consumer price index rose by more than forecast in January on a monthly and annual basis, suggesting that the road back to the 2% inflation target will be bumpy.
• However, the markets quickly pared those losses. The rebound got a boost after data showed US factory production declined for the first time in three months and retail sales dropped in January, indicating that inflation will moderate steadily toward the target.
• Yields climbed to a five-week high of 7.91% on Tuesday after the surprise rise in inflation, but dropped to 7.84% after data showed retail sales fell the most in year and factory production declined. However, yields are still up nine basis points week-to-date at 7.84%.
• The modest losses extend across ratings in the US junk bond market. CCC yields rose eight basis points for the week to 12.58% after jumping to 12.68% on Tuesday.
• BB yields closed at 6.59% after rising to 6.63%, up eight basis points for the week. BBs are headed toward a second straight week of losses.
• As the market was rattled by inflation data, US borrowers stayed on the sidelines as they assessed the risk appetite.
• The primary market was relatively quiet after Monday. More than $6b priced on Monday to make it the busiest day since April 2023.
• The month-to-date supply stood at almost $19b and year-to-date at $50b.
• Even amid volatility, spreads were closer to 300 basis points and yields were still below 8%.
• Barclays expects spreads to compress further to a range of 290-315 basis points in the next six months.
• Marginal demand for yield is strong, and spreads seems to be an afterthought, Brad Rogoff and Dominique Toublan of Barclays wrote this morning.
• We see limited headwinds from the macro side and credit fundamentals, they wrote.

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.

(Bloomberg)  High Yield Market Highlights

• After a bumpy start to the year, US junk bonds are headed for their third straight week of gains, propelled by CCCs, the riskiest tier of the high yield market.
• Gains spanned across the market, spurred by economic growth backed by strong labor market, expanding business activity and cooling inflation data, brushing off Federal Reserve officials’ chorus reiterating that the central bank is not in a hurry to ease monetary policy.
• Risk assets were mostly higher this week, along with yields, as earnings results remained largely positive, Barclays’ Brad Rogoff and Dominique Toublan wrote on Friday
• With macro data still benign, spreads should continue to react to yield moves as the incremental buyer is yield-focused, they wrote
• CCC yields fell 11 basis points week-to-date to 12.45%, the biggest weekly decline within the high yield market. CCCs are on track to be the best performing asset in the US junk bond market, with week-to-date gains of 0.32%
• The rally gained legs as fears of a recession receded in the backdrop of continuing strength in the labor market as US unemployment claims fell for the first time in three weeks
• The broader US high yield index yield rose by three basis points to 7.79%. The rally in CCCs drove the modest gains in broader index
• As spreads dropped to a six-week low of 321 basis points and yields hovered near 8%, US borrowers continued to crowd the primary market. Borrowers were in a hurry to capitalize on the still-low cost of debt, yet high enough to attract buyers, before the economy begins to show some expected signs of slowing in the second half
• After a busy January, with the month-to-date supply at $8.55b, February is on track to be the busiest since 2021

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.

(Bloomberg)  High Yield Market Highlights

• US junk bond supply so far this month is 13% above that for all of January 2023, helped by $3.5b of sales Thursday that was the busiest session in three months.
• The market is on track to have its heaviest overall month in more than two years, with new borrowers led by sponsor-owned companies rushing to refinance debt and extend maturities. Yields have held firmly below 8% and spreads remain below 350 basis points.
• At least four borrowers are expected to sell about $4b in the coming days
• Economic data continue to bolster sentiment, the latest being GDP growth trouncing forecasts amid a jump in personal spending
• Resilient growth, strong business investment and new home sales have spurned recession calls and bolstered risk assets
• Junk bonds are headed for weekly gains, with yields down 9bps to 7.80% and spreads narrowing 4bps to 334bps
• Strength has been across ratings
• BB yields have dropped back below 6.5% and spreads hover near 200bps, with the segment returning 0.4% so far this week
• CCCs have climbed for six consecutive sessions, generating combined gains of 0.5% since Monday

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.