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Weekly Market Summary

Jan 22 to Jan 26, 2024

View Current Performance

Extra Credit*

  • Disruptions at the surrounding the Suez and Panama canals have led to a surge in global shipping costs. Several carmakers in Europe have also announced temporary stoppages, citing supply-chain issues and rising transport costs. This turmoil will likely put upward price pressure on consumer goods, but a return to COVID-relatedinflation remains unlikely due to excess capacity and weaker goods demand. Estimates for the first half of this year are currently anticipating only a 0.7% increase in global core goods CPI if recent cost increases persist.
  • The conflict in the Middle East, combined with a drought in Central America, have led to material disruptions in global maritime trade, adding significant delays to shipping routes along the Suez and Panama canals. Re-routing the Suez container-ship traffic is increasing transport times by about a week (30% longer), which is causing an increase in fuel costs, staffing, and insurance. As a result, global shipping costs—which had seen a near reversal from pandemic-driven surges in 2021-22—have started to rise sharply again. 
  • Expectations coming into 2024 was for high-yield bond and leveraged-loan default rates to remain near their long-term averages over the next two years due to rising corporate fundamental headwinds, restrictive rates, elevated distressed-exchange activity, and a few idiosyncratic issues. Notably, the last time the default rates hovered around the long-term averages for three consecutive years was the stretch ending in 2002. 
  • Forecasts for 2024 are for slower growth year-over-year, elevated rates, and weaker corporate fundamentals potentially leading to an extension of the current default cycle. But a manageable near-term maturity schedule, improving capital markets, a smaller distressed universe, and the lack of a potential bond market contraction could mitigate the extent to which default rates rise.
  • Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished the month at 2.10% and 2.08%, respectively, up and unchanged from 2.01% and 2.08%in November. The 25-year historical default rate for loans and high-yield bonds is 3% and 3.4%, respectively.

Sources: Bloomberg and JP Morgan as of 1/22/24.

Yield as of:
Jan 26, 2023
High-Yield Bonds
Bank-Loans
Investment-Grade Corporates
Last Week
7.75%
10.58%
5.17%
Prior Week
7.89%
10.58%
5.20%
Start of the Year
7.59%
10.60%
5.00%
Option Adjusted Spread as of:
Jan 26, 2023
High-Yield Bonds
Bank-Loans
Investment-Grade Corporates
Last Week
325 bps
500 bps
87 bps
Prior Week
338 bps
499 bps
90 bps
Start of the Year
323 bps
501 bps
93 bps
Prices as of:
Jan 26, 2023
High-Yield Bonds
Bank-Loans
Investment-Grade Corporates
Last Week
$92.73
$95.57
$92.48
Prior Week
$92.22
$95.62
$92.36
Start of the Year
$93.07
$95.32
$93.70

*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.

Any discussion of individual companies is not intended as recommendation to buy, hold or sell securities issued by those companies. Aristotle Fund holdings can be found on the fund pages linked above.

Investors should consider a fund’s investment goal, risks, charges, and expenses carefully before investing. The prospectus and/or the applicable summary prospectus contain this and other information about the Fund and are available from AristotleFunds.com. The prospectus and/or summary prospectus should be read carefully before investing.

Investing involves risk. Principal loss is possible.

Foreside Financial Services, LLC, distributor.

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