March 2024: Outlook and Implementation
► The U.S. high yield market climbed 1.18%, with late March spreads reaching levels not seen since late 2021. The strong performance came as economic data eased inflationary concerns from earlier in the year and the labor market and the economy remained strong.
► Chairman Powell also indicated that a strong labor market would not necessarily prevent falling inflation and lower rates. This brought markets back to “Goldilocks” euphoria, with expectations for near-term rate cuts while the economy remained strong.
► In addition to the positive macro data, earnings remained supportive of tighter spreads, and the positive technicals enabled companies to be very active in refinancing near-term maturities. Returns were fairly even across ratings categories, with higher-quality issues benefitting more from the move lower in Treasury yields and lower-rated issues boosted by the positive economic data and earnings.
► BB, B, and CCC credits returned 1.25%, 1.06%, and 1.10%, respectively. Spreads tightened 13 basis points (bps) to 299 bps, with CCC spreads tightening 33 bps. The yield-to-worst (YTW) decreased from 7.9% at the end of February to 7.7% at the end of March.