BondBloxx: Monthly Fixed Income Update – November 2022 Commentary


November: Fixed Income Update

  • While October started with a fourth Federal Reserve “Fed” rate hike of +75 bps, November also signaled signs of moderating inflation, lower oil prices and the Fed said that it should moderate its tightening policy from December.
  • The turmoil in crypto, including the bankruptcies of FTX and BlockFi, while exposing the lack of financial oversight and highlighting the risk and uncertainty in this space, thankfully had no effect on improving outlook for equity and credit markets.
  • Over the month, broad equities rose +6%, Treasury yields fell and spreads tightened on Investment Grade credit and emerging markets. High Yield spreads were mixed (Chart 1, Table 1).
  • While Fed staff have communicated a “50-50” probability of a recession in the United States, a Bloomberg survey of economists pegs that probability at 63%.

November in numbers

Chart 1

BondBloxx: Monthly Fixed Income Update – November 2022 Commentary

Chart 2

BondBloxx: Monthly Fixed Income Update – November 2022 Commentary

Table 1

BondBloxx: Monthly Fixed Income Update – November 2022 Commentary

Source: ICE Data Services, JP Morgan, Bloomberg, BondBloxx | Data as of 11/30/22

Fixed Income Securities: US Treasuries

  • The main factors behind lower Treasury yields in November were a lower-than-expected CPI for October, slower PPI growth, continued signs of housing market weakness, lower prices of oil and gasoline and the reaction of the Fed to these economic data.
  • Subsequently, the Fed signaled that it would moderate the pace of key rate hikes to avoid excessive tightening, while stressing that borrowing rates would continue to rise and remain restrictive for some time and said that ” the way forward for inflation remains uncertain”.
  • The long end of the yield curve rallied the most in November, with the benchmark 10-year bond yield falling nearly 45 basis points to 3.61%. The 2-year bond yield fell 17 basis points to 4.31% (Chart 3, Table 2).
  • The futures market expects the Fed’s target rate to peak at 5.0% near the end of Q1 2023, after another +100 basis points of policy hikes over the next 3-4 Fed meetings (Chart 4).

Chart 3

BondBloxx: Monthly Fixed Income Update – November 2022 Commentary

Chart 4

Image5-Dec-05-2022-09-37-14-9902-PM

Table 2

Table 2

Source: ICE Data Services, JP Morgan, Bloomberg, BondBloxx | Data as of 11/30/22

Fixed Income: Emerging Markets Debt

  • The combination of an improving global inflation outlook, expected Fed policy moderation and a weaker dollar (Chart 6) helped push emerging market (EM) debt higher in November (Table 3).
  • Dollar-denominated emerging market sovereign debt posted strong returns for the month, with the broad benchmark up +7.6%, while sub-10-year debt rose +5.7% (Chart 5).
  • Spreads tightened for EM debt across all maturity and quality buckets, as EM debt with maturities
  • Year-to-date, shorter-dated EM debt has outperformed broader EM debt by more than 4.0% (Table 3).

Chart 5

BondBloxx: Monthly Fixed Income Update – November 2022 Commentary

Chart 6

BondBloxx: Monthly Fixed Income Update – November 2022 Commentary

Table 3

Table 3

Source: ICE Data Services, JP Morgan, Bloomberg, BondBloxx | Data as of 11/30/22

Fixed Income: U.S. High Yield Ratings

  • High Yield performance was positive across all rating buckets in October, with BBs leading the asset class with a total return of +2.1%, versus +2.0% for single-Bs and +0.7% for CCCs. (Graph 7, Table 4)
  • Straight B and BB bonds benefited from strong Treasury yields, signs of slowing inflation and strong third quarter corporate earnings.
  • Single-B and BB categories are nearly tied for year-to-date returns of -9.6% and -10%, respectively, while CCCs are down more than 15% (Chart 7) .
  • Single-B and BB bond spreads were virtually unchanged, with November yields mirroring Treasuries gains, while CCCs widened +32bps for the month (Chart 8).
  • As a reminder, the market-cap-weighted measures of US high yield are comprised of approximately 50% BB-rated, 40% single-B, and 10% CCC (and below) rated securities.

Chart 7

BondBloxx: Monthly Fixed Income Update – November 2022 Commentary

Chart 8

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Table 4

table4

Source: ICE Data Services, JP Morgan, Bloomberg, BondBloxx | Data as of 11/30/22

Fixed Income: US High Yield Sectors

  • High Yield (HY) recorded a positive market return of +2.2% in November, with a range of 170 basis points between the best and the worst sectors. Year-to-date, there has been a 12% difference between the best performing sector (energy) and the worst performing sector (healthcare) (Table 5).
  • Contrary to its 2022 trend, HY Healthcare outperformed in November, as strong returns from hospital company Community Health Systems (CYH) helped lift the sector by +2.6% (Chart 9).
  • The telecoms, media and communications (TMT) sector lagged in November, with disappointing results from US cable and broadband operator Altice US (CSCHLD) helping to drag down sector results, +1 .0% for the month. (Chart 9). HY Energy lagged as oil and gasoline prices fell.
  • On a spread basis, Energy and TMT were wider, while the remaining sectors were flat to tighter (Chart 10, Chart 5).

Chart 9

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Chart 10

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Table 5

table5

Source: ICE Data Services, JP Morgan, Bloomberg, BondBloxx | Data as of 11/30/22


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There are risks associated with investing, including possible loss of principal. Fixed income investments are subject to interest rate risk; their value will normally decline as interest rates rise. Fixed income investments are also subject to credit risk, the risk that the issuer of a bond will not pay interest and principal on time, or that a negative perception of the issuer’s ability to make these payments causes the price of that bond to fall. decline. Investing in mortgage and asset-backed securities involves interest rate, credit, valuation, extension and liquidity risks and the risk that payments on the underlying assets will be delayed, prepaid, subordinated or in default.

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Bond ratings are ratings assigned to bonds that indicate their credit quality, as determined by independent private rating services, such as Standard & Poor’s, Moody’s and Fitch. These companies assess the financial strength of a bond issuer, or its ability to pay the principal and interest of a bond in a timely manner. Ratings are expressed as letters ranging from “AAA”, which is the highest rating, to “D”, which is the lowest rating.

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