Weekly Market Summary

Extra Credit^*

• The U.S. Federal Reserve cut interest rates cut for the second time this year, reducing its benchmark fed funds rate by 0.25% or 25 basis points. While this was the Fed’s second cut of the year, it came after a hotly debated presidential election that has led to various risk assets moving higher and option-adjusted spreads tightening.
• The third quarter saw a significant turning point for central banks around the globe. The majority of major central banks have signaled the onset of easing, and many sovereign 10-year yields have traded lower after trending higher in the first half of 2024. The People’s Bank of China announced a series of stimulus measures, while the Bank of England and European Central Bank cut rates during the quarter. As of the end of September, the 10-year government bond for China, Germany and UK was down -0.5%, -0.7%, and -0.4%, respectively, for the year. and Japan’s 10-year bond was up only 0.1%.
• Morningstar considers its Morningstar Analyst Rating as a forward-looking metric, and investors have responded by adding nearly $377 billion to 5-star funds in 2024 through September. On the other hand, investors have also been open to new non-rated strategies, adding almost $170 billion to non-rated funds in 2024 (non-rated funds are those that do not have a track record of at least three years). As for institutional investors, they have added nearly $141 billion to 5-star funds vs. outflows of $131 billion to 3-star funds so far in 2024.
• Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished September at 1.30% for high-yield bonds and 0.55% for bank loans, up and down from 1.18% and 0.98% 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-Global Financial Crisis default rates of 2.3% and 2.5%, respectively.

Sources: Bloomberg and JP Morgan as of 11/11/24.