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Weekly Market Summary


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Extra Credit*

  • Credit markets remained remarkably calm, as high all-in yields continued to drive demand despite tight spreads. Valuations have been well supported by the seemingly benign macro picture, but with rates likely to remain higher for longer, fundamentals could come under pressure from tighter financial conditions.
  • Cash spreads across investment grade and high yield were marginally wider this week, but remain near recent tights, with one-month option adjusted spread  volatility declining to almost two-year lows. The stability has come despite a sharp pickup in investment-grade supply ($90 billion month-to-date, versus a full-month estimate of $110 billion), as demand for new issue has been robust. High-yield supply also increased this week, with nearly $8 billion pricing as of Wednesday's close, yet spreads are only two basis points wider.
  • There are several developments that bear watching over the coming week. Energy prices have continued to move higher this month, with West Texas Intermediate (WTI) trading above $90 for the first time since November; which if sustained, could drive an increase in headline inflation. Higher fuel costs are also starting to impact margins, as highlighted recently by several airlines.
  • The most recent National Federation of Independent Business (NFIB) survey was weaker, with small business sentiment declining for the first time in four months. A net negative 14% of all owners reported higher nominal sales in the past three months, which was the lowest reading of the past 50 years outside of the financial crisis and the pandemic. The number of owners reporting that job openings were hard to fill declined to the lowest level since early 2021. These data points provide somewhat of a counter to the recent strength in other headline data.
  • The United Auto Workers (UAW) strike and the potential shutdown of the federal government could prove disruptive, but neither appears to have impacted investor sentiment or market pricing to date.
  • 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 9/29/23.

Yield as of:
Sep 29, 2023
High-Yield Bonds
Investment-Grade Corporates
Last Week
Prior Week
Start of the Year
Option Adjusted Spread as of:
Sep 29, 2023
High-Yield Bonds
Investment-Grade Corporates
Last Week
394 bps
518 bps
112 bps
Prior Week
384 bps
510 bps
108 bps
Start of the Year
469 bps
592 bps
121 bps
Prices as of:
Sep 29, 2023
High-Yield Bonds
Investment-Grade Corporates
Last Week
Prior Week
Start of the Year

*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.

Investors should consider a fund’s investment goal, risks, charges, and expenses carefully before investing. The prospectus and/or the applicable summary prospectus contain this and other information about the Fund and are available from AristotleFunds.com. The prospectus and/or summary prospectus should be read carefully before investing.

Investing involves risk. Principal loss is possible.

Foreside Financial Services, LLC, distributor.

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