Weekly Market Summary

Extra Credit^*

• Treasury yields have moved lower over the last few weeks and are now close to January levels. This may seem a bit odd as economic data has been surprising to the upside on the economy (growth forecasts are higher), labor markets (job gains forecasts are higher) and inflation (strong January core print). While the Fed still seems to be sticking to its forecast for cuts in 2024, the case for meaningful easing has weakened and increased the risk of the Fed enacting a shallower easing cycle.
• Estimates of term premium are also not far from the levels of late last year. Net supply of notes and bonds should ramp up over the coming months and more medium term, as the Fed considers reducing the maturity of its Treasury portfolio—which also means more duration supply to investors.
• Credit is a bit softer, driven by issuance and not by credit-risk issues. U.S. investment-grade cash has widened by 9 basis points to 97 basis points since reaching two-year tights on Feb. 22. At the same time, high-yield cash has also widened by 9 basis points to 315 basis points. This corresponds to an 18-basis-point outperformance for high yield adjusting for beta.
• The Bloomberg US Corporate High Yield Index is now $1.36 trillion in par outstanding, up $3.7 billion since the end of February. This month, 34 new issues added $24.9 billion in new index par, and there was $150 million in fallen angels. These additions were offset by $9.6 billion in called debt, $4 billion in bonds hitting the 12-month maturity constraint, $3.3 billion in rising stars (Las Vegas Sands, Royal Caribbean Cruises), and $300 million in defaulted debt (Cano Health).
• Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished February at 1.77% and 1.66%, respectively, down from 1.95% and 2.04% in January. The 25-year historical default rate for loans and high-yield bonds is 3.00% and 3.40%, respectively.

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.

Sources: Bloomberg and JP Morgan as of 3/11/24.