Weekly Market Summary

Extra Credit^*

• October new home sales declined 5.6% month-over-month to 679,000, alongside a 40,000 downward revision to the prior month. The print highlights slightly lower demand amid elevated mortgage rates. The median price for a new home decreased by 3.1% month-over-month in October, a second straight monthly decline. The median new home price is now $409,300, down $87,500 from a year ago.
• Mortgages remain wide by historical standards, though that’s probably to be expected given the technical backdrop of Federal Reserve’s quantitative tightening, positive net supply, and bank runoff. While spreads appear fair, there could be a modest amount of tightening if the year progresses along some base case forecasts that have the Federal Reserve cutting rates sooner than some expect. For commercial mortgage-backed securities (CMBS), investors may see delinquencies grow in 2024 and rating downgrades accelerate, which poses a challenge to seasoned exposures.
• Investment-grade corporate-bond spreads are expected to tighten in 2024. Look for credit fundamentals to hold up amid sluggish but positive growth. Also, yield-driven demand should remain strong with a notable pickup from overseas investors, while supply should decline modestly led by non-financials shying away from high coupons. The key risk is simply valuations as tight spreads don’t leave much cushion for unforeseen negative catalysts.
• 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 11/27/23.