Weekly Market Summary

Extra Credit^*

• The global macro backdrop remains favorable, as the US economy remains resilient, Europe continues to show signs of gradually exiting its slump, and activity in China seems to be stabilizing. At the same time, central banks are still confident that, despite some recent setbacks in inflation prints, the disinflation trend remains intact. Policymakers have often highlighted that they are in 'no rush' to cut rates, as the Fed's Waller did recently, but overall, they still signal that they will likely start their easing cycles in June.
• In a light week of data, the collapse of the Francis Scott Key bridge that shut the Port of Baltimore attracted a lot of attention. This port is one of the smaller ones (ranked 15^th) in terms of tons of container cargo handled. However, it ranks first in the U.S. for the volume of automobiles and light trucks it handles and for vessels that carry wheeled cargo, including farm and construction machinery. The port handled nearly 850kcars and light trucks last year, more than any other U.S. port. As a result, its closure may affect primarily auto imports into the U.S. 
• Bond funds continued to see inflows, with year-to-date cumulative flows having almost doubled the quarter one pace in2023. Bank demand slowed sharply, as the slight increase in their U.S. treasury holdings were offset by a decline in holdings of MBS and other securities. Japanese investors net bought, while Fed custody holdings declined.
• Over the past week, inflows into bond exchange-traded funds (ETFs) and mutual funds continued. Overall, funds recorded about $7 billion of inflows, which is the 58^th percentile versus the prior six months and 65^th percentile excluding short-term funds. Inflows remained strong for mortgage-backed and total return bond funds, while flows into intermediate-term government bond funds picked up after having pulled back in the past few weeks. Banks' holdings of Treasury and agency debt edged up $5 billion in the latest week of data, though they reduced holdings in MBS and other securities by $8 billion. This represents a slowdown in demand from the past two weeks, though estimates show that part of the overall decline in banks' securities portfolios was due to valuation effects, given that yields rose over that week.
• Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished the month at 1.86% and 1.67%, respectively, up from 1.77%and 1.66% in February. The 25-year historical default rate for loans and high-yield bonds is 3.00% and 3.40%, respectively.

Sources: Bloomberg and JP Morgan as of 4/1/24.