From the Desk: Week of September 13, 2021

Weekly market insights from our investment teams

“In the U.S., August inflation rose less than expected, providing some relief that supply chain stress maybe abating. But one data point doesn’t make a trend. Expect inflation to run well above target well into next year.

None of this is likely to influence the Fed as it seeks to normalize economic data. For the inflation pulse, it relies heavily on a trimmed mean which ignores items with big swings on the upside and downside. While this may seem like data mining, the assumption is that outliers will eventually fade leaving the trimmed mean as a better indicator of persistent inflation.

Right now the trimmed mean is well-behaved, giving the Fed comfort that the higher traditional inflation measure is transitory. When the Fed meets next week expect it to remain on message and provide some details on pushing ahead with tapering.”

Dec Mullarkey Dec Mullarkey

Dec Mullarkey

Managing Director, Investment Strategic Research & Initiatives


“In September, markets tend to reverse whatever weakness or strength August may have brought. And right on cue, after the U.S. Corporate option-adjusted spread (OAS) index widened from 85 to 91 bps last month and investment grade (IG) spreads have retraced losses, finding themselves right back at August tights. Despite a wave of IG issuance totaling $118 billion in the first 2 weeks of September, spreads didn’t blink. To put this into context, over the past 5 years September has averaged $133b in IG issuance.¹ Cash inflows have met the new debt with ease and with many of the more popular new deals oversubscribed, allocations have been light, leaving fixed income managers with few options other than to chase spreads tighter. With Treasury yields threatening to touch their lowest levels since January, any additional carry is in high demand, so it’s no wonder that cash has been flocking to the IG space. According to Lipper data, in September alone over $4 billion in new money has flowed into IG mutual funds, while Bank of America reported that IG bond ETFs have seen additional inflows of over $10 billion. Continued compression of spreads in 2021 means ratings quality curves have been pushed to close to their lowest levels since the financial crises of 2008, resulting in very little additional return pickup for going down in quality, increasing risk, and chasing higher yields.²”

Tim Tierney Tim Tierney

Tim Tierney

Director, Trader, U.S. Public Fixed Income, Insurance


¹ Bloomberg data

² Citi Research, Bloomberg data


Market insights are based on individual portfolio manager opinions and market observations. These are observations only and are not intended to provide specific financial, tax, investment, insurance, legal or accounting advice and should not be relied upon and does not  constitute a specific offer to buy and/or sell securities, insurance or investment services. Investors should consult with their professional advisors before acting upon any information posted here.