Economic Commentary
- The Fed left rates unchanged, as widely expected. Christopher Waller and Stephen Miran both dissented.
- The FOMC statement raised their assessment of economic growth from a moderate pace to a solid pace, and noted that the unemployment rate has shown some signs of stabilization.
- Powell offered no inclination on his post-Chair future, nor any update on the subpoenas related to the ongoing investigation into the office building renovation.
- The University of Michigan’s sentiment index rose to a five-month high in its final January release, with the biggest improvements in buying conditions and personal financial outlook. The 43-day federal shutdown badly hurt sentiment at all income levels in October and November. It took two months to fully recover to September levels.
- The Atlanta Fed GDPNow estimate is currently +5.4%.
- The spike in long-term JGB rates has eased as rumors of US and/or Japanese intervention rippled through markets.
- Treasury will announce its quarterly financing estimates on Monday February 2nd.
- We may see another partial government shutdown after Friday.
- Natural gas is trading above $7 for the first time since 2022.
Our take: There were no real surprises from the Fed, and the future direction of policy will depend on evolving data over the coming months. Markets are pricing-in less than 2 cuts in 2026, back-end loaded after expected changes in the composition of the FOMC, which feels about right.
Corporate Bond Market Commentary
- IG spreads were -2bp tighter to +73bp and total returns were +0.18%.
- Investment grade new issuance was only $20 billion across 16 issuers, below expectations on account of choppy market conditions. NICs were 2.6bp, books were 4.5x covered, and attrition was 15%.
- Month-to-date IG issuance has already broken the record for most volume ever in January at over $199 billion.
- Fund flows into IG were +$3.1 billion.
- HY spreads were +3bp wider to +269bp and total returns were +0.10% (BBs +0.07%, Bs +0.07%, CCCs +0.33%).
- HY new issuance was $12 billion including deals from Asurion, Petco, WR Grace, Albertsons, Tailored Brands, Columbus McKinnon, Uniti Group, and Hillenbrand.
- Fund flows out of HY were -$1.4 billion, while leveraged loans were +$428 million.
Our take: Investment grade issuance has already set a record for a January month, with a few days left. As companies emerge from earnings blackouts, the pace could pick up again. The supply has been well-absorbed so far, but the next wave may be a bit more challenging. High yield issuance started January slowly, but has been steadily ramping up and should also increase, albeit later, as HY companies generally tend to report earnings a little later than their IG counterparts.
Municipal Bond Market Commentary
- The municipal bond index returned -0.21% last week.
- Yields were unchanged, +3bp, +7bp and +9bp, and ratios were unchanged, unchanged, +2%, and +2% to 64%, 58%, 62%, and 86% at 1, 5, 10, and 30 years respectively.
- Fund flows were +$921 million including $653 million into mutual funds and $268 million into ETFs.
- New issue volume totaled $12.1 billion, but this week’s calendar totals only $4.6 billion.
- Next week investors will receive $11 billion of principal and $9 billion of interest.
Our take: The municipal bond market took a slight step back last week but otherwise remains healthy. The elevated calendar was absorbed and is lighter this week, ahead of a solid wave of technical reinforcement from the $20 billion of principal and interest payments investors will receive on February 1st.
Important Information
Investors should consider a fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other information about a fund. To obtain a prospectus, visit www.sheltoncap.com/ or call (800) 955-9988. A prospectus should be read carefully before investing.
It is possible to lose money by investing in a fund. Past performance does not guarantee future results. Any projections or other forward-looking statements regarding future events or performance of markets, companies, or otherwise are not necessarily indicative or differ from, actual events or results.
INVESTMENTS ARE NOT FDIC INSURED OR BANK GUARANTEED AND MAY LOSE VALUE.
