IR+M’s July Market Update

Market News

• The positive momentum in risk assets from June carried over into July as equities rose and credit spreads tightened amid better-than-expected inflation prints and economic data
  • CPI rose by 3.0% year-over-year in June, lower than expected and the slowest pace in two years, while core CPI rose by 4.8%; the PPI final demand reading grew by just 0.1% year-over-year
  • U.S. GDP grew by an annualized rate of 2.4% in the second quarter of the year and consumer spending rose by 1.6% in the same period, both metrics higher than expected
• The FOMC resumed its hiking campaign in July, increasing the federal funds rate target range by 25bps to 5.25% - 5.50%; Chair Powell did not rule out further rate increases while markets expect little change to the current rate through year-end
  • Treasury rates rose slightly on the month, apart from the 1-3-year portion of the curve; the 10-year Treasury yield rose by 12bps from 3.84% to 3.96%
• An influx of investment-grade new issuance on the last day of the month drove primary supply to over $88 billion for July, surpassing investor projections of $75 billion
  • Corporate spreads tightened by 11bps during the month to 112bps, reaching their tightest level on the year
• Issuance in the high-yield market continued to decline in July as $7.1 billion priced on the month, continuing the trend of historically low supply; although the rate of issuance in 2023 is up by 42% compared to last year, the amount of new highyield supply year-to-date is at its lowest level since 2009 (except for 2022)
  • The muted primary market activity has seen the par amount held in the Bloomberg High Yield Index decline from its peak of $1.58 trillion in October 2021 to $1.37 trillion at the end of July
  • High-yield spreads fell by 23bps during the month, from 390bps to 367bps, the tightest mark since April 2022
• Securitized products broadly outperformed Treasuries, but underperformed corporates on the month; agency mortgagebacked securities (MBS) outperformed other securitized products driven by the positive economic and inflation data
• Municipal bonds returned 0.4% in July, outperforming Treasuries again as the 10-year muni/Treasury ratio dropped from 66% to 64%; year-to-date municipal issuance is down by 13.3% compared to last year

Market Statistics

Printable Version

As of: 07/31/23. Sources: Bloomberg
Excess returns are the curve-adjusted excess return of a given index relative to a term structure-matched position in Treasuries. The views contained in this report are those of Income Research & Management (“IR+M”) and are based on information obtained by IR+M from sources that are believed to be reliable but IR+M makes no guarantee as to the accuracy or completeness of the underlying third-party data used to form IR+M’s views and opinions. This report is for informational purposes only and is not intended to provide specific advice, recommendations, or projected returns for any particular IR+M product. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Income Research + Management. “Bloomberg®” and Bloomberg Indices are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”) and have been licensed for use for certain purposes by IR+M. Bloomberg is not affiliated with IR+M, and Bloomberg does not approve, endorse, review, or recommend the products described herein. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to any IR+M product.