Weekly Market Summary

Extra Credit^*

• For U.S. interest rates, despite ongoing moderation in the labor market, solid real-income growth should continue to support activity. On the front-end of the yield curve, rates are likely to remain relatively pegged amid recalibration cuts, while long-end rates should continue to unwind last year's late decline.
• Global bond markets have sold off modestly to start 2024, partially unwinding last year’s late rally. U.S. Treasury yields have moved higher, but elsewhere there has been larger repricing activity happening. Across the Atlantic, Gilts have sold off about 20 basis points due to supply concerns, and Bunds have followed suit due to front-end rates responding to the upside inflation surprises.
• With yields at the healthiest levels in more than a decade, this should be a catalyst for total returns across credit. But ongoing demand will make excess returns harder to come by considering the rally in spreads across most markets in 2023.
• New demand from non-traditional investment-grade credit investors has increased thanks to elevated yields and a robust economy. This has come on top of demand from more traditional investors such as lifers and pension funds. Most of this demand has been yield focused, with spreads being almost an afterthought if the issuer has been deemed “safe.”
• 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 1/9/24.

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