HY Market Weekly Minutes: Fed's Hawkish Cut Sparks Selloff as Yields Hit Four-Month High (December 20, 2024)
A Brief Recap of Last Week's High Yield Market Performance
🚨 Connect with me on Twitter / Instagram / Threads / Bluesky | Estimated Read Time: 5 Minutes
🚀 We’re expanding! Interested in full-time or internship opportunities (Summer 2025)? Get in touch!
💡 Got a job post? I’m open to having you publish here—drop me a message!
The moment we’ve all been anticipating has arrived—spreads finally sold off from their near-record tights!
Last week saw a notable repricing in high yield as the Fed’s hawkish stance triggered the largest selloff since August. Despite delivering the widely expected 25bps rate cut, Powell’s tone and the updated dot plot signaling just two cuts in 2025 sent yields surging 31bps to 7.50%—the highest level since August. The technical picture deteriorated rapidly as spreads widened 23bps to 285bps, marking their largest one-week expansion in over four months.
More telling than the magnitude of the moves was their breadth. CCCs, which had shown remarkable resilience throughout 2024, finally cracked with yields breaching 10% for the first time since November. Meanwhile, BB yields jumped to 6.39%, their highest mark since mid-August. The abrupt reversal in sentiment was particularly evident in the secondary market, where cash bonds saw their sharpest one-day decline since August across both investment grade and high yield paper.
Primary markets ground to a complete halt ahead of year-end, with just $2.1 billion pricing across three deals before the Fed meeting. The technical backdrop faces a stern test heading into 2025 as markets digest both hawkish Fed rhetoric and rising odds of a government shutdown.
Let’s dive in.
Quick housekeeping note: Starting January 1st, subscription prices will increase to $120/month. Anyone subscribing before then will be locked into current pricing indefinitely. Going forward, subscribers will receive exclusive access to these weekly market updates for two weeks before they are made available for broader release. Stay tuned for my comprehensive year-end position review covering all 70 write-ups published to date. Note that I’ll be taking my annual break after this update and will resume regular postings in January.
Jobs in Credit:
💡 Have a job opening you’d like to share here? Shoot me a message.
Blackrock - Private Credit, Direct Lending Investment Professional - Associate
New York Life - Director - Investment Analyst - High Yield and Leveraged Loans
Blue Owl - Private Corporate Credit Investments, Principal / Vice President
Weekly Performance Recap
For the week ended December 20th, the high yield market posted its sharpest weekly decline since August, with the overall index returning -0.81%. This brings month-to-date returns to -0.62% and trims year-to-date gains to +7.99%. The selloff was remarkably broad-based across ratings buckets:
BBs declined -0.84%, bringing YTD returns to +6.16%
Bs fell -0.83%, with YTD returns at +7.14%
CCCs dropped -0.71%, though maintaining an impressive YTD return of +14.71%
The market’s negative performance came as Powell emphasized that while policy remains restrictive, the Fed needs to see “further progress on inflation as well as continued strength in the labor market” before considering additional cuts. This hawkish shift was particularly evident in the dot plot, which now shows just two cuts anticipated for 2025—down from four in September’s projections.
Primary Market Activity
Primary market activity effectively shut down for the year, with just three deals totaling $2.1 billion pricing ahead of the Fed meeting. December issuance stands at $13 billion, pushing full-year volume to $279 billion—easily surpassing 2023’s total of $176 billion.
Notable transactions included:
Ford Motor Credit placed $1.25 billion of Ba1/BBB- rated senior unsecured notes at par to yield 6.1%
Starwood Property Trust executed a $500 million bond offering at 6.5%
Secondary Market Dynamics
The secondary market saw dramatic moves across both investment grade and high yield, highlighted by significant weakness in recent new issues. Recent new issues faced particular pressure, with several December deals trading down multiple points from their clearing levels.
Looking Ahead
The market approaches 2025’s final stretch with mixed signals. Core PCE data showed a welcome slowdown to 0.11% month-over-month, below the expected 0.18%, supporting the soft-landing narrative. However, the Fed’s hawkish stance and potential shutdown concerns continue to temper optimism.
The political landscape adds complexity. Trump’s opposition to the current funding bill and push for debt ceiling measures creates uncertainty. As January 1st’s debt ceiling deadline approaches, markets face potential disruptions in economic data flow and heightened volatility. The timing of extraordinary measures and funding resolutions remains unclear, which could pressure risk assets.
Technical indicators also suggest growing headwinds for 2025. December saw record leveraged loan volume, primarily from repricing activity as issuers capitalized on favorable conditions. This shift could impact high-yield spreads as investors adjust their portfolios. Looking ahead, banks might begin easing lending standards for the first time in over two years, while a robust M&A pipeline and expected surge in LBO activity point to increased supply.
The fundamental question remains: can strong corporate health withstand an increasingly complex environment? While balance sheets remain solid overall, recent quarters show early signs of weakness. Though companies maintain buffers against sustained high rates, several factors—persistent inflation, the Fed’s firm posture, and anticipated policy changes under the new administration—suggest the current tight spread environment may face pressure.
Stay tuned.
Find the most recent JunkBondInvestor posts below
Disclosure: The information provided is based on publicly available information and is for informational purposes only. While every effort has been made to ensure the accuracy of the information, the author cannot guarantee its completeness or reliability. This content should not be considered investment advice. Any investment decisions made based on the information provided are at your own risk. It is essential to conduct your own research and consult a qualified financial advisor before making any investment decisions. Investing involves risks, and past performance is not indicative of future results. By using this information, you acknowledge that you are responsible for your own decisions and release the author from any liability. Always seek professional advice tailored to your financial situation and objectives.