Weekly Market Summary

Extra Credit^*

• In investment-grade corporate bonds last quarter, BBB’s accelerated share buybacks, which increased by 5% on a year-over-year basis, while buyback growth had already been trending higher for single-As over the last few quarters. This is meaningful as it signals a shift by issuers away from prioritizing prudent balance-sheet management amid fears of economic slowdowns towards returning capital to investors following a string of strong quarters.
• Investment-grade corporate bond issuers have begun to return more money via dividends, which increased by 6.3% year-over-year, accelerating growth in dividends by 1.1% relative to last quarter. Despite the recent acceleration, dividend growth is still lower than the 2010-19 average, which was 8% year-over-year. Although there has not been a massive surge like what was seen in late 2022 and early 2023, the consistent growth over the past four quarters solidifies that the trough has passed.
• While share buybacks and capex spending raised more concerns due to which issuers were taking part (i.e., lower-quality issuers), the recent increase in dividends has been driven by single-As, which increased 14% year-over-year. This, inherently, causes less call for concerns, due to their better fundamental standing vs. lower quality issuers.
• In aggregate, this might signal better times to come in 2025 for corporate-credit investors. With buybacks and capex increasing and dividends showing prospectives of a bottom from the lowest-quality issuers, signs of the tide turning positive for investors are already present. Next year is setting up to continue these trends, as expectations are for more shareholder distributions, higher capex spending, and more M&A deal activity.
• Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished October at 1.54% for high-yield bonds and 0.34% for bank loans, up and down from 1.30% and 0.55% in the month prior. This is also well below the long-term historical default rate of 3% for loans and 3.4% for high yield, and the historical post-GFC default rates of 2.3% and 2.5%, respectively.

Sources: Bloomberg and JP Morgan as of 12/23/24.