Weekly Market Summary

Extra Credit^*

• The rise in interest rates since late September has mostly been a boon for credit, as higher yields have attracted demand and the rates-spread correlation has been negative. More recently, though, the speed at which rates have risen and the absolute level of long-end yields have led to some concerns about tightening financial conditions and their effect on risk assets. 10-year Treasury yields have risen month-to-date, with about two-thirds of the move coming from real rates. However, this has not been an issue for spreads historically if real growth remains at or above trend.
• Bloomberg Barclays recently released a forecast for rising stars and fallen angels for 2025, as expectations were for $30 to $50 billion in rising stars and $40 to $60 billion in fallen angels in 2025, after just $34 billion and $6 billion, respectively, in 2024.
• Even though rates have remained elevated this year, few investment-grade issuers felt ratings pressure, as there have been $34 billion of rising stars and only $6 billion of fallen angels (net $28 billion). If the year were to end today, 2024 would have the lowest volume of downgrades to high yield since 1997. As a percent of the Bloomberg US Credit BBB Index, fallen-angel volumes were a record low at 0.2%.
• Since 2021, there have been net $239 billion in rising stars, the largest net volume over any four-year period since at least 1997. The recent surge in rising-star volumes has no comparable historical precedent, as the next largest four-year stretch of volumes would still have $160 billion fewer net rising stars. Issuers have remained fundamentally sound in the years following the pandemic, for the most part managing cash balances conservatively and putting the effort in to acquire or maintain investment-grade ratings.
• Bank-loan and high-yield bond default rates, excluding distressed exchanges, finished September at 1.18% for high-yield bonds and 0.98% for bank loans, down and up from 1.40% and 1.16% in August. 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 10/28/24.