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Weekly Market Summary
Dec 11 to Dec 15, 2023
Extra Credit*
- Money-market fund AUM currently sits at a record high of $5.72 trillion. Whether this is a play on the current state the interest-rate environment or the desire to seek safe harbor given the economic and geopolitical environment, mutual funds and ETFs could see record flows in 2024 if interest rates retreat and/or the economy finds a soft landing.
- For investment-grade corporates, there is likely going to be a focus on the potential for heavy supply in January. January is usually an active issuance month ($136 billion average over the past four years). Additional factors that may increase supply next month include the recent strong spread and yield rally, expectations that financials will be more active issuers in 2024 than this year (and financials usually dominate January issuance), and the U.S. presidential election in the fall of 2024, which may encourage some borrowers to front-load supply next year even more than usual.
- While U.S. Treasury yields have bounced from their lows, investors may want to rethink adding duration as the Federal Reserve may try to push back against expectations of earlier and more aggressive easing with investor positioning long and dealer inventory rising to its highest levels in the past three years.
- Asset-backed security (ABS) rating upgrades continue to greatly outnumber downgrades, despite more negative rating actions in sectors such as subprime auto, master limited partnerships (MPL), aircraft, and Federal Family Education Loan Program (FFELP) loans. There have been rare downgrades of ABS to CCC and below this year, but these distressed ABS consumers highlight the idiosyncratic seller/servicer risks amplified at the bottom of the ABS structures.
- Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished the month at 2.01% and 2.08%, respectively, up from 1.89% and 1.76% from October. 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 12/11/23.
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.
Any discussion of individual companies is not intended as recommendation to buy, hold or sell securities issued by those companies. Aristotle Fund holdings can be found on the fund pages linked above.
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