Weekly Market Summary

Extra Credit^*

• Data over the past few weeks shows flows have moderated as the sell-off in rates has affected fixed-income demand. While nearly $4 billion flowed into fixed-income mutual funds and ETFs 8/1/23 to 8/25/23, more than half was invested in short-term government funds. This was a bit of an improvement from the prior week, but still well below the pace at the end of July, when funds had nearly $8 billion of inflows 8/1/23 to 8/25/23. Mortgage-backed funds saw particularly lackluster demand (at the third percentile over the past six months). Intermediate and long-term corporate bond funds and inflation-linked funds also posted notable outflows.
• Mortgages continue to have a hard time finding their footing amid the heightened August volatility, typically underperforming alongside rate sell-offs. On a spread basis, option-adjusted spreads remain on the wider end of their one-month range across coupons and products. Concerns remain around the capacity for money managers to add mortgages, as sell-offs spur outflows and as they already maintain substantial overweight positions.
• Gross high-yield issuance totals $110.8 billion thus far in 2023, up 37% year-over-year, while net, or ex-refinancing, volume of $40.8 billion is down -3% versus the same period a year ago. Notably, each month in 2023 has produced below-average issuance volume. Specifically, a monthly average of $14 billion and $23 billion of high-yield and bank-loan issuance, respectively, have been priced year-to-date, which compares to long-term averages of $26 billion and $39 billion, respectively. Notably, September has been the most active month for high-yield issuance over the past 13 years, averaging $34.1 billion of volume vs. the average of $25.6 billion over the past year. The two least active months are December ($15.4 billion) and August ($19.3 billion), and the most active months on a gross basis for loans are February ($55.7 billion) and March ($44.6 billion), while the two least active are July ($24.9 billion) and August ($30.4 billion).
• The trailing 12-month default rates for bank loans and high-yield bonds, excluding distressed exchanges, finished the month at 2.24% and 1.29%, respectively, down from 2.33% and 1.18% from July. The long-term historical default rate for loans and high-yield bonds is 3.1% and 3.2%, respectively.

Sources: Bloomberg and JP Morgan as of 8/28/23.