Weekly Market Summary

Extra Credit^*

• The firm core CPI print for January was followed by a firm reading for February. The headline PCE Price Index rose 0.3% in January while the core index came in at 0.4%. This monthly increase in the core was the largest monthly gain in a year and came largely due to firmness in the core services (excluding housing aggregate). Prices for this “super core” measure jumped 0.6% in January, the largest monthly gain in about two years. The January inflation data will likely prove to be largely noise if the economy slows and labor markets become less tight over time. While three-month run rates for the main PCE price measures have picked up lately, prints—compared to a year ago—have continued their moderating trend with the headline up 2.4% in January and the core price index rising 2.8%.
• Recent data on consumer sentiment/confidence pointed to some weakening in February. The Conference Board reported its consumer confidence index declined from 110.9to 106.7 in February. The decline cut into a portion of the 11.8 point of the past three months, but now it looks like this gauge of consumer attitudes has been drifting roughly sideways lately through some ups and downs in the data.
• Investment-grade corporate bond spreads have remained in a tight8-basis-point range in February and are trending modestly tighter. In yet another reminder supply follows demand, spreads have been tighter despite record issuance for a February with $194 billion printing, which is an amazing28% higher than the prior record of $152 billion set last year and 76% higher than the four-year average for February. This also follows a record January, bringing year-to-date supply to a record $388 billion (30% year-over-year).This is notable given that March is typically the busiest supply month, averaging $161 billion over the past four years (excluding pandemic-influenced2020). Thus, investors have begun to wonder whether we’ve seen the typical March supply pulled forward into January-February.
• Despite the deluge of supply in investment-grade corporate bonds, we have not seen any material widening outside of the long-end where the10-year/30-year Treasury yield spread has gone from 12 basis points at the end of January to 18 basis points currently. The intermediate part of the curve is being supported by very strong mutual fund and ETF inflows; weekly inflows in February have averaged $6.4 billion (10%) versus $5.8 billion seen in January. Inflows have not only increased overall this year but are also stronger month-over-month unlike last year where inflows tapered off somewhat from January to February.
• 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 3.0% and3.4%, respectively.

Sources: Bloomberg and JP Morgan as of 3/4/24.