Weekly Market Summary

Extra Credit^*

• Fallen angel volumes total $12.5 billion year-to-date and are not expected to increase meaningfully by year-end. Fallen angel volume is still below 2022 levels and well below 2007 levels leading into the Global Financial Crisis. Without a near-term catalyst to drive the US into recession, the increased risk of high-yield downgrades is pushed further into the future.
• Several supportive factors can keep high-yield bond option-adjusted spreads contained for the rest of 2023, including a strong economy and low unemployment. The S&P 500 has returned approximately 19% year-to-date and market participants have revised expectations for the index to finish the year higher than anticipated. Additionally, the "higher for longer" rates narrative has taken hold and the futures market is  pricing in no cuts until the first quarter of 2024. While this should keep pressure on issuers and points to general spread weakness, a healthy appetite for yield buying remains. In the first half of the year, 9% served as a de facto resistance level for all-in yields.
• The job market has remained tight due to the enduring consumer spending. This tightness is illustrated by the job openings to unemployed ratio that is currently 1.6x and markedly down from the 2.0x post-COVID peak, but still much higher than at any point since at least 2003.
• The trailing 12-month default rates for bank loans and high yield bonds, excluding distressed exchanges, finished the month at 2.41% and 1.64%, respectively, up from 2.41% and 1.49% from May. 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 7/13/23.