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Weekly Market Summary
Nov 20 to Nov 24, 2023
Extra Credit*
- Investors are pricing in a significant rate-cutting cycle in the U.S. next year (currently over 100 basis points of cuts by the end of 2024). This may be too much given the Federal Reserve’s repeated declaration not to cut rates its 2% inflation target is within reach. Despite softness in the October Consumer Price Index (CPI) print, core inflation remains well above the Fed's inflation goal and may very well surprise to the upside, given recent strength in the labor market and consumption.
- During October, Japanese investors purchased a net $8 billion in foreign notes and bonds, down from the $23 billion in September, with the swing in demand driven almost entirely by banks (which has been the case for much of the year). Banks bought a net $3 billion after buying $33 billion in September. Lifers and pensions sold a combined net $3 billion, as they continue to largely remain on the sidelines.
- For the week ending Nov. 15, total assets on the Fed's balance sheet fell $46 billion, with $31 billion in coupon securities rolling off the Federal Reserve Open Market Account (SOMA) portfolio. This compares with an average weekly drop of $23 billion over the prior four weeks. The Fed's emergency lending to banks was unchanged. FDIC borrowings, which are categorized under "other extensions of credit," were also unchanged. On the liability side, reverse repo balances decreased by $80 billion. The Treasury General Account (TGA) fell $93 billion to $670 billion, below the Treasury's stated year-end target of $750 billion. These changes left reserve balances $123 billion higher. At about $3.5 trillion, reserves are roughly $800 billion below their peak from late 2021 but above what would be considered scarce.
- 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 11/20/23.
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.
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.
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