Chart of the Week
Corporations with debt rated below investment grade are in a category called “high yield.” Because the risk of default is higher, they have to pay a higher interest rate, or spread, over Treasuries. This spread reached 5.8% for the high yield index a month ago, but then rapidly declined to 4.3%. (The average bond price also increased during this time, rising from $86 to $91.) When the spread narrows this quickly, it is a positive sign for risk markets.
What We’re Reading
Breaking Points – Collaborative Fund
Why You Shouldn’t Abandon Bonds – Vanguard
Central Bank Digital Currencies, What’s the Deal? – Institutional Investor
How Much Do Supply and Demand Drive Inflation? – San Francisco Federal Reserve
‘Jobful Vibecession’ Will Keep Workers on the Payroll – Bloomberg
Podcast of the Week
Peak of Summer, US Interest Rates Outlook – Macro Horizons
The Past Week
The jobs report blew estimates out of the water with 528,000 jobs added in July, bringing the unemployment rate down to 3.5%. The S&P Purchasing Manufacturer Index reports showed a contraction, while the Institute for Supply Management Index beat forecasters on the upside. On Sunday, the tax and energy bill passed the Senate. The final version did not raise taxes on the wealthy but did target technology companies to pay a minimum 15% tax on financial statement profits.
The Week Ahead
Inflation data is the name of the game this week. We have reports on the Consumer Price Index on Wednesday and the Producers Price Index on Thursday. A lot of companies will report earnings this week including Coinbase, Brookfield Asset Management, and a number of hospitality companies.
We will be back next week.
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