The latest CPI print suggests that the Fed could continue on an aggressive tightening path.
The Consumer Price Index (CPI) rose more than forecasted in April on both a headline and core basis. On a headline basis, CPI rose 0.3% month-over-month and 8.3% year-over-year, while Core CPI (which excludes food and energy) rose 0.6% MoM and 6.2% YoY. Wednesday’s strong inflation print highlights persisting inflationary pressures that continue to weigh on households, and are likely to force the Federal Reserve to continue on its path of aggressive rate hikes to quell elevated levels of inflation.
We explore the importance of active management in the European high yield market.
In the first four months of the year, European high yield credit spreads widened 104 basis points, approximately 35%, to reach 465bps. The sector’s underperformance to the more domestically skewed U.S. high yield market has been noteworthy, if not unsurprising, given the unfortunate events that have unfolded in Europe.
Reviewing spread performance on a sectoral basis, our analysis shows limited divergence between pro-cyclical and non-cyclical sectors (38% widening vs. 34%, respectively) but, as ever...
The central bank accelerated tightening with a large rate hike and quantitative tightening, amid strong growth, elevated inflation and a tight labor market.
At its April meeting, the Bank of Canada accelerated its tightening cycle, building on March’s 25-basis-point rate hike with a larger, 50bp increase to lift the overnight rate to 1%. The 50bp move, the first hike of that magnitude in 22 years, suggests the BoC has lost the patience it demonstrated back in January when it took a pass on raising rates in an environment of strong growth and surging inflation.
Regardless of whether we get a hard or soft landing, we likely face a steep approach to the runway in trying to “land this plane.” The question is, how well consumers and companies absorb the slowdown, and whether sentiment is already bearish enough to create long-term value.
Recent spread-widening appears to reflect concern about rising rates incentivizing extensions, and an economic slowdown incentivizing coupon deferrals—concerns we regard as significantly overstated and a source of attractive valuations.