Weekly Market Summary

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• In the near term, the widely held view of an imminent economic slowdown along with persistently large budget deficits remain headwinds for investors.  
• While yields historically have fallen following the last hike of a Federal Reserve rate-hiking cycle, current economic conditions are not as favorable as in the past, and the ending of the hiking cycle alone may not bring down rates.
• Investors have been closely watching potential changes in monetary policy in Japan for spillover to the global bond markets. There is likely to be some upward pressure on global bond yields from developments in Japan. However, it may be limited, which would leave yields range bound. Far forward rates in Japan have already risen sharply, and continued sales of FX-hedged bonds should not come as a surprise. A material shift in the long-term inflation outlook remains a risk, though, going forward.
• After a summer of quiet issuance and broad strength in spreads, a pickup in supply is expected to hit the high yield and loan markets this month. This should at least partially ease the technical factors that have been keeping spreads grinding tighter and give both markets some breathing room. 
• The trailing 12-month default rates for bank loans and high-yield bonds, excluding distressed exchanges, finished the month at 2.24% and 1.29%, respectively, down from 2.33% and 1.18% from July. 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 9/11/23.