Weekly Market Summary

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• Credit markets remained remarkably calm, as high all-in yields continued to drive demand despite tight spreads. Valuations have been well supported by the seemingly benign macro picture, but with rates likely to remain higher for longer, fundamentals could come under pressure from tighter financial conditions.
• Cash spreads across investment grade and high yield were marginally wider this week, but remain near recent tights, with one-month option adjusted spread  volatility declining to almost two-year lows. The stability has come despite a sharp pickup in investment-grade supply ($90 billion month-to-date, versus a full-month estimate of $110 billion), as demand for new issue has been robust. High-yield supply also increased this week, with nearly $8 billion pricing as of Wednesday's close, yet spreads are only two basis points wider.
• There are several developments that bear watching over the coming week. Energy prices have continued to move higher this month, with West Texas Intermediate (WTI) trading above $90 for the first time since November; which if sustained, could drive an increase in headline inflation. Higher fuel costs are also starting to impact margins, as highlighted recently by several airlines.
• The most recent National Federation of Independent Business (NFIB) survey was weaker, with small business sentiment declining for the first time in four months. A net negative 14% of all owners reported higher nominal sales in the past three months, which was the lowest reading of the past 50 years outside of the financial crisis and the pandemic. The number of owners reporting that job openings were hard to fill declined to the lowest level since early 2021. These data points provide somewhat of a counter to the recent strength in other headline data.
• The United Auto Workers (UAW) strike and the potential shutdown of the federal government could prove disruptive, but neither appears to have impacted investor sentiment or market pricing to date.
• The trailing 12-month default rates for bank loans and high-yield bonds, excluding distressed exchanges, finished the month at 2.24% and 1.29%, respectively, down from 2.33% and 1.18% from July. 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 9/29/23.