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Weekly Market Summary
Nov 13 to Nov 17, 2023
Extra Credit*
- The October Consumer Price Index (CPI) surprised favorably, with the headline measure up 0.1% (it was 3.2% a year ago), and excluding food and energy, the core CPI was up 0.2% (4% a year ago). Both figures came in a tenth lower than expectations. While there was some moderation in rental inflation, most of the improvement came in core services excluding rent (also known as super-core), which was up a modest 0.2%.
- For investment-grade corporate bonds, active supply is being met with strong demand, keeping option-adjusted spreads stable and spread volatility low. The issuance calendar has been well telegraphed, and market technicals have been in a good place to absorb the bonds that have come to market.
- Investment-grade corporate bond supply over the past couple of months has come at a pace that was near expectations, as earnings have surprised to the upside and higher yields have supported strong demand, all of which have helped to dampen periods of spread weakness. The market’s stability—despite the significant rates volatility over the past few weeks, the attack on Israel and the subsequent volatility in overall risk sentiment—suggests both technicals and market fundamentals still remain strong.
- In investment-grade corporates, option-adjusted spreads should stay range-bound as yields decline, but ratings trend up. With the earnings season nearly complete for investment-grade companies and the results are thematically “good enough for credit,” this is translating into ratings trends where upgrades continue to occur at a 4:1 pace vs downgrades.
- Bloomberg recently forecast issuer-weighted default rates of 4 to 5% for high-yield bonds and 5.5 to 6.5% for loans, an increase from the current 12-month trailing rates of 3.4% for bonds and 5% for loans.
- Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished the month at 1.89% and 1.76%, respectively, down and up from 1.90% and 1.32% from September. The long-term historical default rate for loans and high yield bonds is 3.1% and 3.2%, respectively.
Sources: Bloomberg and JP Morgan as of 11/16/23.
Previous reports
*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.
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