US high-yield credit set for best returns in eight years in 2024

A lower rung of US junk bonds is set to deliver its best returns in eight years in 2024, underscoring a significantly higher risk-return payoff for investors dabbling in speculative assets this year.

Returns on CC-rated debt, two rungs above D – meaning in default, have surged nearly 48% this year, a far cry from 83% in 2016 but nearly three times higher than last year, according to data from Morningstar Direct.

In comparison, investment-grade credit has generated returns between 3% and 5% this year, while other junk bond tiers have yielded returns between 7% and 15%.

Investment-grade bonds are generally perceived to be safer, but their lower risk and greater stability mean lower returns than often illiquid high-yield bonds.

This year’s outperformance by high-yield bonds has been driven by stronger corporate profitability and a soft economic landing that has kept default rates near historic lows and supported strong recovery rates, Bob Michele, global head of fixed income at JPMorgan Asset Management, said.

“It has been a very good year for credit,” Michele told the Reuters Global Markets Forum (GMF).

“Areas that stood out to us were the performance of bank debt, especially AT1, and the performance of high yield,” he added. AT1, or additional tier one bonds, are designed to act as shock absorbers that can be written off or converted into equity if a bank’s capital levels fall below a certain threshold, providing a cushion at times of market turmoil.

Despite record-tight spreads in corporate bond markets, asset managers remain bullish on US fixed income, bolstered by President-elect Donald Trump’s election victory and the Republicans’ control of the House and Senate, which are expected to reinforce pro-growth policies and further support risk assets.

“Spreads across risky assets are extremely tight and worth a second look for investors, but the favorable growth and labor market environment have continued to make it difficult for investors to step away,” Gennadiy Goldberg, US rates strategist at TD Securities, told the GMF.

The ICE BofA high-yield index, which tracks the performance of junk bonds .MERH0A0, has hit record highs above 1,736 this week and is heading for a rise of 9.7% in 2024.

(Reporting by Mehnaz Yasmin in Bengaluru. Editing by Amanda Cooper and Mark Potter)

Oil prices rise on China stimulus, possible tight supply in Europe

HOUSTON – Oil prices rose on Tuesday as markets looked to rising demand in China, the world’s largest buyer, and possible tight supply in Europe this coming winter and away from the overthrow of Syria’s president.

Brent crude futures settled at USD 72.19 a barrel, up 5 cents or 0.07%. US West Texas Intermediate finished at USD 68.59 a barrel, up 22 cents or 0.32%. Both benchmarks had risen more than 1% on Monday.

Support came from reports that China will adopt “appropriately loose” monetary policy in 2025 as Beijing tries to spur economic growth. This would be the first easing of its stance in 14 years, though details remain thin.

Chinese crude imports also grew annually for the first time in seven months, jumping in November from the year-earlier period.

The increase, however, “was more a function of stockpiling than demand improvement,” said Tamas Varga of oil broker PVM.

“The economy will only be stimulated by improving consumer sentiment and spending, by a rise in domestic aggregate demand echoed in a healthy increase in consumer inflation,” he added.

Speculation about winter demand was also a factor, said Phil Flynn, senior analyst with Price Futures Group.

“Hedge funds are starting to buy on tightness of supply in European markets this winter,” Flynn said.

In Syria, rebels were working to form a government and restore order after the ousting of President Bashar al-Assad, with the country’s banks and oil sector set to resume work on Tuesday.

“The tensions in the Middle East seem contained, which led market participants to price for potentially low risks of a wider regional spillover leading to significant oil supply disruption,” IG market strategist Yeap Jun Rong said.

While Syria itself is not a major oil producer, it is strategically located and has had strong ties with Russia and Iran.

Oil prices could receive a boost if the US Federal Reserve comes through with an expected quarter-percentage-point cut to interest rates at the end of its Dec. 17-18 meeting. That could juice oil demand in the world’s biggest economy, though traders are waiting to see if this week’s inflation data derails the cut.

(Reporting by Erwin Seba in Houston; Editing by Louise Heavens, David Goodman, Paul Simao, and Mark Porter)

US yields rise amid supply, before inflation data

NEW YORK – US Treasury yields rose on Tuesday as the Treasury sold USD 58 billion in three-year notes, the first of USD 119 billion in coupon-bearing sales this week, and as traders waited on key inflation data due later this week.

Tuesday’s three-year note auction saw solid demand at a high yield of 4.117%, only slightly above where it had traded before the sale. Demand was 2.58 times the amount of debt on offer.

It will be followed by an auction of USD 39 billion in 10-year notes on Wednesday and of USD 22 billion in 30-year bonds on Thursday.

Traders are waiting on consumer price inflation data on Wednesday and producer price inflation data on Thursday for any signs that inflation is picking up, which could derail the Federal Reserve’s expected interest rate cut next week.

“Those are the big numbers for the week,” said Tom di Galoma, head of fixed income trading at Curvature Securities. “I do think inflation is coming down… (but) inflation could certainly be a problem if it does push higher.”

Economists expect both headline and core consumer prices to have risen 0.3% in November, for an annual gain of 2.7% and 3.3%, respectively.

Producer prices are expected to show a 0.2% monthly increase in November, in both headline and core, for a 2.6% and 3.2% annual increase.

Markets are pricing in an 86% chance of a 25 basis point rate reduction next week, with a pause in January then seen as most likely.

Benchmark 10-year note yields were last up 2.5 basis points at 4.224%. Interest rate-sensitive two-year note yields rose 2.4 basis points to 4.151%.

The yield curve between two-year and 10-year notes was little changed on the day at 7 basis points.

Traders added to bets of a December rate cut after jobs data for November showed that the unemployment rate rose to 4.2%, from 4.1%, despite strong jobs gains during the month.

Data on Tuesday showed that US unit labor costs grew far less than initially thought in the third quarter, pointing to a still favorable inflation outlook, even though price increases have not moderated much in recent months.

Fed officials are in a blackout period before the Dec. 17-18 meeting.

(Reporting By Karen Brettell; Editing by Kevin Liffey and Chizu Nomiyama)

Taking chips off the table, seeking China clarity

Investors go into Wednesday in a cautious frame of mind as they continue to digest the likely impact of China’s policy signal this week, and following a ‘risk off’ day that saw stocks fall and the dollar and bond yields rise.

Asia’s economic calendar on Wednesday is light, with only Japanese producer inflation and South Korean unemployment figures on tap. Reserve Bank of Australia Deputy Governor Andrew Hauser also speaks, following the bank’s policy decision on Tuesday.

With US inflation figures to be released later on Wednesday after Asian markets close, potentially a key factor in whether the Fed cuts rates next week or not, investors may be inclined to hold the line and keep risk exposure to a minimum.

Tuesday’s market moves would feed into that mindset. World stocks fell for a second day in a row, something that last happened a month ago, while the rise in bond yields and the dollar tightened financial conditions further.

Investors may be extra sensitive to any rise in bond yields this week, as the US Treasury sells USD 125 billion of notes and USD 85 billion of bills.

Japanese government bond yields and the yen may also be sensitive to Wednesday’s producer price numbers from Japan, especially after the substantial upward revision to third-quarter GDP growth on Monday.

Meanwhile, investors and market watchers continue to try to figure out if Beijing’s historic shift in its monetary and fiscal policy stance this week will be matched by equally bold action.

The economy certainly needs it. The latest trade figures on Tuesday were uniformly weak, with the near-4% year-on-year slump in imports last month particularly alarming. That was significantly worse than the bleakest forecast in a Reuters survey of 21 economists of a 3% decline, and highlights how brittle domestic demand is.

The 10-year Chinese bond yield fell further on Tuesday to a new all-time low of 1.877%. It has fallen more than 15 basis points so far this month, and it is on track for its steepest monthly fall since July 2021.

Some analysts reckon the decline this week is a positive reaction to Beijing’s shift, as it shows investors are anticipating a significant loosening of monetary policy soon.

There may be something to that, and substantial policy easing could indeed reflate growth and asset prices. But it’s hard to disentangle the move in yields from the latest trade and inflation data that are a reminder of just how heavy the deflationary and weak demand pressures bearing down on the economy actually are.

The Indian rupee, meanwhile, is anchored at a record low, with rate cut hopes rising after the government named career civil servant Sanjay Malhotra to replace outgoing Reserve Bank of India Governor Shaktikanta Das.

Here are key developments that could provide more direction to markets on Wednesday:

– South Korea unemployment (November)

– RBA Deputy Governor Andrew Hauser speaks

– Japan producer inflation (November)

(Reporting by Jamie McGeever)

RBA decides, debate sparks over China policy shift

A look at the day ahead in Asian markets.

The Reserve Bank of Australia‘s interest rate decision takes center stage on Tuesday, while debate intensifies over the likely success – or otherwise – of China’s surprise announcement that it plans to implement looser monetary and fiscal policy.

The RBA is widely expected to keep its cash rate unchanged at 4.35%, so the focus will be on when Governor Michele Bullock signals the easing cycle might start.

Economists polled by Reuters reckon it will be some time in the second quarter, and Aussie money markets are pointing to a quarter point cut on April 1.Sentiment across Asia may be dented by Wall Street’s slide on Monday, but investors continue to digest the first shift in China’s broad policy stance since 2010.

The Politburo’s recommendation that a “more proactive” fiscal policy and “moderately loose” monetary policy be followed may not be on the same scale as Mario Draghi’s famous “whatever it takes” pledge to save the euro in 2012. But it could still be hugely significant in China’s battle to emerge from the property bust, deflation and sub-par growth.

China bulls argue that, following the blitz of fiscal and market-supporting liquidity measures earlier this year, Beijing’s commitment to get the economy back on track can no longer be questioned.

Although it will take time for policies to take effect, the dial has definitely shifted, so investors would do well to get in and buy Chinese equities now.

Those of a more cautious persuasion will say actions speak louder than words, and point out that Beijing has promised much in recent years but always under-delivered. Unless Beijing assumes the banking sector’s bad loans and bails out the banks, nothing will materially change.

Chinese stocks are still considerably higher than they were before the first stimulus and market support measures were announced in September, and billionaire hedge fund manager David Tepper’s subsequent “buy everything” call on China. China’s economic surprises index has bounced back too.

But economists remain skeptical over the 2025 growth outlook and Chinese bond yields are sinking – the 10-year yield is below 2% for the first time on record, and the 30-year yield is below the Japanese equivalent for the first time in around 20 years. Hardly the signs of recovery.

In addition, any optimism may be tempered by the latest inflation figures which suggest Beijing’s efforts to revive economic activity and demand are having a limited impact so far.

Sino-US trade tensions are bubbling up again too. China said on Monday it has launched an investigation into Nvidia Corp over suspected violations of the country’s anti-monopoly law. The move is widely seen as a retaliatory shot against Washington’s latest curbs on the Chinese chip sector.

Here are key developments that could provide more direction to markets on Tuesday:

– Australia’s interest rate decision

– China trade (November)

– Taiwan’s TSMC monthly sales announcement

(Reporting by Jamie McGeever;)

US Treasury yields rise ahead of inflation data

US Treasury yields rose on Monday as traders waited on key inflation data due this week to see whether stubbornly high price pressures could derail expectations for a Federal Reserve interest rate cut next week.

The Fed is widely expected to cut rates by 25 basis points at the conclusion of its Dec. 17-18 meeting, with a pause then seen as likely in January.

But inflation is key to whether the Fed will continue to cut rates.

Fed officials including Chair Jerome Powell have said that recent upticks in its preferred Personal Consumption Expenditures data reflect a bumpy path to its 2% annual target, but don’t change the overall trend.

“If we see a convincing uptick that the Fed isn’t able to continue using that bumpy excuse on, then that will call into question whether or not the Fed can deliver a rate cut next week,” said Vail Hartman, US rates strategist at BMO Capital Markets in New York.

Hartman said a solid to high 0.4% gain in core consumer prices could raise doubts over a cut next week, but rate expectations will also depend on producer prices.

Economists expect consumer prices released on Wednesday will show that both headline and core prices rose by 0.3% in November, for an annual gain of 2.7% and 3.3%, respectively.

Producer prices released on Thursday are expected to show a 0.2% monthly increase in November in both headline and core, for a 2.6% and 3.2% annual increase.

The next PCE release is due on Dec. 20.

Benchmark 10-year yields were last up 4.2 basis points at 4.195%. Interest rate-sensitive two-year yields rose 2.6 basis points to 4.124%.

The yield curve between two-year and 10-year notes steepened two basis points to 7 basis points.

Traders added to bets of a December rate cut after jobs data for November released on Friday showed some warning signs that the labor market was weakening. The unemployment rate rose to 4.2% from 4.1% despite strong jobs gains during the month.

Some underlying details in the report, including a weaker household survey, also pointed to declining labor market strength.

“The aggregate data is conforming with the whole slowdown theme,” said Hartman.

Fed officials are now in a blackout period before next week’s meeting.

Traders are also watching geopolitical events after rebels seized the Syrian capital of Damascus.

Risk appetite was boosted on news that China will adopt an “appropriately loose” monetary policy next year, the first easing of its stance in some 14 years, alongside a more proactive fiscal policy to spur economic growth.

The US Treasury Department will sell USD 119 billion in new coupon-bearing supply this week. This will include USD 58 billion in three-year notes on Tuesday, USD 39 billion in 10-year notes on Wednesday and USD 22 billion in 30-year bonds on Thursday.

(Reporting By Karen Brettell; editing by Jonathan Oatis)

Oil rises over 1% on ouster of Syria’s Assad, Chinese monetary policy

HOUSTON – Oil prices climbed more than 1% on Monday on higher geopolitical risk after the fall of Syrian President Bashar al-Assad, and as top importer China flagged its first move towards a loosened monetary policy stance since 2010.

Brent crude futures settled USD 1.02, or 1.4%, higher at USD 72.14 per barrel. US West Texas Intermediate crude futures were up USD 1.17, or 1.7%, to USD 68.37.

“Events in Syria over the weekend could impact the crude market and increase the geopolitical risk premium on oil prices in the weeks and months to come amid yet more instability in the Middle East region,” said Jorge Leon, Rystad Energy’s head of geopolitical analysis.

Syrian rebels said on state television on Sunday they had ousted Assad, ending a 50-year family dynasty and raising fears of more instability in a region gripped by war.

While Syria is not a major oil producer, it holds geopolitical clout due to its location and ties with Russia and Iran, and mixed with the tensions elsewhere in the region, the regime change has potential to spill into neighboring territories, Leon said.

In early signs of disruptions in the oil market, a tanker carrying Iranian oil to Syria turned around in the Red Sea, ship-tracking data showed.

Meanwhile, China will step up “unconventional” counter-cyclical adjustments, focusing on expanding domestic demand and boosting consumption, state media Xinhua reported, citing a readout of a meeting of top Communist Party officials, the Politburo.

China’s growth has stalled as a slump in the property market has hit confidence and consumption. Loosening policy refers to actions by a central bank or government to boost growth, such as increasing money supply, lowering interest rates, and implementing fiscal stimulus.

“We see a commodity-price boom if China indeed follows through with the promises of looser monetary policy and the possibility that they will do whatever it takes to stimulate the economy,” said Phil Flynn, senior analyst at Price Futures Group.

China’s slowdown was a factor behind the decision of oil producers’ group OPEC+ last week to postpone plans for higher output until April.

Weighing on prices, leading exporter Saudi Aramco on Sunday reduced its January 2025 prices for Asian buyers to their lowest level since early 2021, as markets worried it could signal weak demand.

Traders also remained focused on US inflation data expected later this week that could cement a December interest-rate cut by the Federal Reserve next week.

Lower interest rates decrease the cost of borrowing, which can boost economic activity and spur demand for oil.

(Reporting by Arunima Kumar in Bengaluru, Enes Tunagur in London, Yuka Obayashi in Tokyo and Siyi Liu in Singapore; Editing by Jason Neely, Mark Potter, Alexander Smith, Barbara Lewis and Rod Nickel)

US 10-year yields fall to six-week low after payrolls, markets see green light to December cut

NEW YORK – US Treasuries yield fell to a six-week low after the release of November payrolls data, as investors considered the numbers as a green light to one more rate cut by the Federal Reserve on its December 17-18 meeting.

The yield on the benchmark US 10-year Treasury note fell 3.3 basis points to 4.149%. The front end of the curve had a sharper drop, with the two-year US Treasury yield falling 5 basis points to 4.096%.

The yield on the 10-year note fell to 4.126% during the session, its lowest since Oct. 21, while the 2-year yield slumped to 4.077%, a level not seen since Nov. 1.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=TWEB steepened after to 5.1 points. Just before the payrolls release, the yield curve inverted to negative 7.1 basis points, the lowest in three months.

Odds of a 25-basis points rate cut in the December meeting jumped to 89% on Friday, up from 70% late on Thursday, according to the CME’s FedWatch Tool.

“It looks like there’s no reason to worry about an imminent recession and there’s no reason for the Fed to take a pause on cuts quite yet,” said Brian Jacobsen, chief economist at Annex Wealth Management.

Nonfarm payrolls increased by 227,000 jobs last month after rising an upwardly revised 36,000 in October, the Labor Department said in its closely watched employment report on Friday. But it did not seem to signal a material shift in labor market conditions.

“Data this morning was a Thanksgiving buffet with payrolls spot on, revisions positive, but unemployment ticking higher despite the participation rate falling. This print doesn’t kill the holiday spirit and the Fed remains on track to deliver a cut in December.”, said Lindsay Rosner, head of multi sector investing at Goldman Sachs Asset Management.

Ellen Zentner, chief economic strategist at Morgan Staney Wealth Management said although the economy is still producing a healthy amount of job and income gains, “a further increase in the unemployment rate tempers some of the shine in the labor market and gives the Fed what it needs to cut rates in December.”

The 10-year yields fell 4.4 basis points this week and the 2-year yields, 7.6 basis points.

Despite rising expectations the central bank will cut rates at its upcoming meeting, Federal Reserve Governor Michelle
Bowman said inflation risks to the economy remain real and labor market data hard to interpret, and that requires caution with further decisions on central bank rate cuts.

In addition, Chicago Federal Reserve Bank President Austan Goolsbee remained noncommittal on whether he would support an interest rate cut at the central bank’s meeting this month, but reiterated to his view that interest rates will fall over the next 12 months.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.340% after closing at 2.369% on December 5.

The 10-year TIPS breakeven rate was last at 2.258%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Tatiana Bautzer, Chuck Mikolajczak, Davide Barbuscia and Lawrence Delevigne
Editing by Mark Potter and Nick Zieminski)

China inflation eyed, global political uncertainty bubbling up

A look at the day ahead in Asian markets.

Attention turns to China on Monday and the release of November inflation data, with global investor sentiment broadly upbeat as the relentless rally on Wall Street continues but tempered by an increasingly volatile geopolitical backdrop.

The toppling of Syrian President Bashar al-Assad and the uncertainty that unleashes on an already volatile Middle East, criminal charges against South Korean President Yoon Suk Yeol, and France’s political chaos are all potential reasons for investors to play it safe.

If so, US Treasuries and other government bonds, gold and the dollar may all see increased interest in early trading on Monday. The fast-moving events in South Korea could ripple across Asia, and the country’s finance ministry and central bank are expected to do all they can to ensure financial stability and protect the won.

The currency has weakened around 10% since the end of September, hitting a two-year low last week. A move through 1,445 won per dollar, which is eminently possible, will mark its weakest level since the global financial crisis in early 2009.

On the other hand, the prospect of further interest rate cuts from the US Federal Reserve and falling Treasury bond yields, combined with solid US employment figures on Friday, delivered yet another record high on Wall Street.

Global FX volatility may be on the rise, but measures of US equity and bond market volatility are the lowest in months. As long as that remains the case, Wall Street seems set to end a remarkable year on a firm footing.

Investors in Asia on Monday have their first opportunity to react to Friday’s US non-farm payrolls report which showed solid job growth but an uptick in the unemployment rate last month.

Rates traders appeared to have put more weight on the unemployment rate – they now fully expect a quarter point rate cut from the Fed on Dec. 18, and priced in an extra 10 bps of easing over the course of next year.

The main data focus on Monday in Asia will be consumer and producer price inflation from China. The pace of monthly consumer deflation is expected to have accelerated to -0.4% from -0.3%, and this would be the deepest rate of month-on-month price declines since March. Annual inflation is seen rising to 0.5% from 0.3%.

Producer prices, however, are expected to remain deep in deflationary territory with factory gate prices falling at an annual rate of 2.8% in November, little changed from October’s 2.9% fall.

Investors will also now be looking ahead to China’s upcoming Politburo meeting, where Beijing’s top policymakers will set out their priorities for the coming year. For investors, the government’s 2025 growth target and budget will be two of the most important.

Here are key developments that could provide more direction to markets on Monday:

– China producer, consumer inflation (November)

– Japan GDP (Q3, revised)

– Taiwan trade (November)

(Reporting by Jamie McGeever
Editing by Lisa Shumaker)

US Treasury yields mixed as investors wait for payrolls

NEW YORK – US Treasury yields were mixed on Thursday, with those on the front end of the curve trading higher, as investors looked ahead to Friday’s nonfarm payrolls report that could help determine the pace of the Federal Reserve’s current easing cycle.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, rose 2.7 basis points to 4.148%. The yield on benchmark 10-year Treasury note reversed early gains and fell 0.6 basis points to 4.176% after the jobless claims report released on Thursday.

Markets slightly reduced the odds of a 25-basis point rate cut in this month’s meeting. CME’s FedWatch tool showed on Thursday a 70% chance of a December rate cut, lower than the 75% chance late on Wednesday.

The number of Americans filing new applications for unemployment benefits increased moderately last week, suggesting the labor market continued to steadily cool. Initial claims for state unemployment benefits rose 9,000 to a seasonally adjusted 224,000 for the week ended Nov. 30, the Labor Department said on Thursday. Economists polled by Reuters had forecast 215,000 claims for the latest week.

“Jobless claims were much ado about nothing; even with the 9,000 bump in the most recent filing week, claims remain at a very low level”, said Jason Ware, chief investment officer and chief economist at Albion Financial Group in Salt Lake City.

Markets are now shifting focus to data that can show a clearer picture of the job market, the nonfarm payrolls expected for Friday morning. Next week will have inflation indexes ahead of the December 17-18 Federal Reserve meeting.

“Between now and the meeting, there’s so much economic data, the payrolls on Friday, CPI and PPI next week, markets will look at the numbers as crucial to (the) Fed’s decision,” said Mike Lorizio, senior fixed income trader at Manulife Investment Management in Boston. Albion’s Ware thinks the labor market data are more important now to the Fed’s decision than the inflation data.

Fed Chair Jerome Powell appeared to signal on Wednesday support for a slower pace of rate cuts ahead, when he said the economy was stronger at this point than the central bank had expected in September. San Francisco Fed President Mary Daly added there was “no sense of urgency” on reducing borrowing costs further.

The breakeven rate on 10-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.271%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Tatiana Bautzer; Editing by Jonathan Oatis and Diane Craft)

2024 Mid-Year Economic Briefing: Navigating the Easing Cycle

Investing with Love: A Mother’s Guide to Putting Money to Work

Investor Series: An Introduction to Estate Planning

Policy rate views: Fed expected to do baby steps

Inflation Update: Faster but full-year average within target