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Weekly Market Summary

Mar 25 to Mar 29, 2024

View Current Performance

Extra Credit*

  • A dovish sounding Fed, investment grade corporate yields back around 5.50% and slowing issuance versus still strong demand - it’s hard to think of a better backdrop for spreads. Indeed, spreads rallied consistently a few weeks ago and into this week to bring us right back to the year-to-date (YTD) tights. Absent a material move in yields, it’s hard to see what will slow a potential steady grind tighter. Supply has already begun to slow somewhat with $112 billion month-to-date and this should improve further. April is typically a lackluster month for issuance with $94 billion on average over the last 4 years (and last year it was actually the  lightest month of the year with just $67 billion). Demand remains strong with 20 consecutive weeks of investment grade fund inflows, totaling $82 billion so far this year and it’s fair to expect some quarter-end rebalancing out of equities into bonds next week given the significant outperformance of the latter.
  • It has been a strong few weeks for the asset-based security (ABS) market with spreads holding firm amidst healthy primary and secondary activity. New issues continued to see robust oversubscription and pricing levels across the capital structure, sectors and issuers, while secondary saw balanced two-way flows. By estimates, roughly 110+ issuers have sold $86.4 billion in quarter one this year already versus 80+ for a total of $59.6 billion in quarter one last year. While in secondary, year-to-date volume is 27% higher versus same period last year.
  • YTD spread performance in emerging market sovereign credit has been characterized by high yield and investment grade compression. While emerging market investment grade sovereign spreads are, on aggregate, broadly unchanged this year, emerging market high yield sovereign spreads are 40 basis points tighter. This has been led by a favorable global risk environment, albeit this has not been the only driver behind the compression trade. Notably, there are some     fundamental factors that have supported these market moves. A number of positive idiosyncratic developments, such as in Egypt, have sparked significant spread rallies among some high yield sovereigns.
  • Beyond the individual stories in emerging market credit, fundamental trends have also been supportive. This has been reflected in YTD rating changes, as upgrades have significantly outnumbered downgrades (with upgrades of Uruguay and Qatar earlier this month being the latest examples of this favorable trend). And the latest rally in a number of relevant commodity prices should also provide some fundamental tailwinds, especially for commodity-exporting frontier economies, such as those in Sub-Saharan Africa.
  • Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished the month 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.

Sources: Bloomberg and JP Morgan as of 3/25/24.

Yield as of:
Mar 29, 2023
High-Yield Bonds
Investment-Grade Corporates
Last Week
Prior Week
Start of the Year
Option Adjusted Spread as of:
Mar 29, 2023
High-Yield Bonds
Investment-Grade Corporates
Last Week
299 bps
484 bps
85 bps
Prior Week
296 bps
483 bps
83 bps
Start of the Year
323 bps
501 bps
93 bps
Prices as of:
Mar 29, 2023
High-Yield Bonds
Investment-Grade Corporates
Last Week
Prior Week
Start of the Year

*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.

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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