Weekly Market Summary

Extra Credit^*

• The Federal Reserve recently released its Z1 data series (known as the flow of funds) for 4Q23, which shed light on fixed-income supply and demand dynamics for the quarter. On the supply side, issuance rose, driven by corporates and U.S. Treasuries. While Treasury-Bill (T-bill) issuance fell versus the previous quarter, there were still over $400 billion of T-bills supplied on net in Q4. On the demand side, households and foreign investors stepped up, while banks remained on the sidelines.
• Treasury issuance, excluding T-bills, was about $175 billion in Q4, up by over $100 billion from Q3. On the surface, this appears low, given the wide budget deficit, but much of the issuance in 2023 has come from bills, which was over $400 billion in Q4.
• Net agency issuance turned positive, and both corporate-bond and municipal-bond issuance rose. Corporate-bond issuance rose nearly $200 billion for the quarter.
• Overall, net issuance of fixed-income securities to investors (excluding bills and Fed) was about $614 billion in Q4, up from about $220 billion in Q3.
• Global-loan forward calendars are starting to pick up, which could mean more loans for Collateralized Loan Obligations (CLOs) to buy. Dealers continued to net add U.S. non-investment-grade CLO risk over the past few weeks, as they have been doing since late summer 2023. The outstanding size of the U.S. loan market has been shrinking this year and has been range bound in Europe, but global-loan forward calendars are starting to pick up, which has potential to change this dynamic.
• Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished February at 1.77% and 1.66%, respectively, down from 1.95% and 2.04% in January. The 25-year historical default rate for loans and high-yield bonds is 3.00% and 3.40%, respectively.

Sources: Bloomberg and JP Morgan as of 3/18/24.