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Weekly Market Summary
Dec 25 to Dec 29, 2023
Extra Credit*
- Is volatility going to continue to push investors towards active management in 2024? Year-to-date, investment-grade fixed income has experienced what would be the fifth highest year of volatility since 1946 (last year ranked as the third highest, and 1980-1981 finished first and second). Volatility in equities so far in 2023 only ranks 20th, but it seems to be enough to push investors to seek actively managed equity strategies. In aggregate, 2023 is shaping out to finish the year as just the second year in the last decade where active flows outpaced passive.
- The Federal Reserve's surprising pivot on interest-rate guidance buoyed markets after the FOMC’s last meeting of the year, but also created the risk of re-accelerating U.S. growth and eventually inflation. The European Central Bank and Bank of England were much more measured, but slowing inflation, combined with weak growth, brings cuts into view there, too. The Bank of Japan stayed put but set the stage for potential future hikes.
- BBB investment-grade corporates now trade nine basis points wide to single As based on a regression analysis. BBB and single-A spreads are highly correlated, and current levels suggest that BBBs are trading at nearly the widest point to their relationship-implied levels. All while expectations for 2024 are pointing toward a near-record level of BBB upgrades.
- 2023put ABS back in positive return territory, outperforming comparable Treasuries and unsecured corporates, despite spreads still wide from the tights for the year. The ABS investor base showed depth across asset classes and the rating categories this year, absorbing record supply despite a bias towards higher quality.
- Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished the month at 2.01% and2.08%, respectively, up from 1.89% and 1.76% from October. 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 12/18/23.
Previous reports
*Source: Morningstar®, Bloomberg, Credit Suisse. OAS is Options Adjusted Spread. 4-year discount margin is used for spread for bank loans. Yield quoted is yield-to-worst or equivalent calculation. YTD Low / High for yields are based on end of week and not intraday movements. Indexes and sub-indexes: Investment-grade corporates represented by Bloomberg US Corporate Bond Index. High-yield bonds represented by Bloomberg US Corporate High Yield Index. Bank loans represented by Credit Suisse Leverage Loan Index. The red and green arrows depicted under Yields, Option Adjusted Spreads, and Prices indicate a higher or lower value from the previous week.
Past performance does not guarantee future results. Index performance is not indicative of fund performance. Indexes are unmanaged and it is not possible to invest directly in an index.
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