December Credit Snapshot

The credit markets in December 2024 navigated a complex mix of macroeconomic factors, seasonal dynamics, and central bank policy, resulting in a subdued but steady month for activity. Investor sentiment remained cautious as markets awaited key data releases and the Federal Reserve’s meeting on December 18th. Despite these challenges, the credit market demonstrated resilience, with manageable issuance volumes and moderate secondary market activity.

The new issue calendar for December had the most activity concentrated in the first two weeks of the month. Issuers focused on managing refinancing needs and positioning ahead of potential rate changes in 2025.

Investor demand remained robust in the investment-grade (IG) market, supported by expectations of rate stabilization or eventual cuts in 2025. High-yield (HY) issuance was more selective, reflecting heightened risk premiums and cautious investor sentiment.

IG credit spreads were trading within a 5-20 basis point range. Tighter spreads reflected strong investor appetite for high-quality credit amid declining U.S. Treasury yields toward month-end.

Secondary trading volumes were steady, with investors rotating between new issuances and secondary market opportunities. Volatility in rates contributed to active repositioning in the secondary market.

The U.S. Treasury curve saw further flattening and volatility, with 2’s&10’s closing positively sloped at +7 basis points and 2’s&30’s positively sloped at +25 basis points. Yields moved higher mid-month, reflecting economic uncertainty and mixed inflation data, but rallied lower into month-end as the market priced in potential easing in 2025.

Persistent concerns about inflation and monetary policy direction remained a key challenge for market participants. Issuers faced elevated borrowing costs, with the impact more pronounced for lower-rated credits and sectors with heavy refinancing needs.

Ongoing tensions in Eastern Europe, the Middle East, and uncertainty in global trade relations continued to weigh on investor confidence, elevating risk premiums in high-yield markets.

Net client selling was concentrated in 3-7 year and 12-30 year maturities, with Financials, Energy, and Consumer Discretionary leading the charge. Technology was a notable outlier, seeing net client buying as investor favored growth-oriented sectors amid falling Treasury yields.

The CDX index opened December at 48.12 and traded in a narrow range, reflecting subdued volatility. The Bloomberg Barclays U.S. Aggregate OAS closed at 0.76, slightly tighter than November levels, as spreads benefitted from strong investor demand for high-quality credit.

December 2024 marked the end of a challenging yet constructive year for the credit markets. While macroeconomic and geopolitical uncertainties linger, the strong fundamentals of the IG market and easing inflationary pressures provide a cautiously optimistic backdrop for 2025. As the market moves into the new year, all eyes will remain on central banks, inflation data, and the evolving global economic landscape.

Looking ahead, the trajectory of the credit markets will hinge on:

• Inflation Trends: Continued disinflation could pave the way for rate cuts, supporting credit spreads.
• Monetary Policy: Market participants will closely monitor the Fed’s decisions in early 2025 for further clarity on rate direction.
• Corporate Fundamentals: Issuers with strong balance sheets are expected to perform well, while weaker credits may face challenges rolling over debt in a still-elevated rate environment.

The AmeriVet team continues to differentiate itself with a strong presence in the new issue market, bringing significant orders from Tier II and Tier III accounts and contributing to successful deal execution.