Navigating Market Risk

August 7, 2023

Navigating Market Risk Photo

Last week was filled with market-moving news. On Tuesday after market close, Fitch Ratings downgraded its U.S. long-term rating from AAA to AA+.1 On Wednesday, we received a strong ADP National Employment Report and the Treasury refunding showed a significant increase in issuance.2 The fiscal deficit started to worry the bond market, as Treasuries sold off sharply and the yield curve steepened. Thursday brought Apple and Amazon earnings — with Amazon earnings showing consumer demand is strong.3 Friday’s jobs report showed the pace of hiring is slowing while wage pressure persists.4

The market has embraced the soft landing narrative over the last few months, and the risk market has rallied strongly. The risk now is the economy doesn’t slow down enough and inflation remains sticky, which leads to higher Treasury yields. The supply-demand of Treasuries may become challenging over the year. The Treasury supply will increase to approximately $1 trillion from approximately $730 billion for this quarter.5 In the meantime, quantitative tightening continues, and foreign buyers have little incentive to buy U.S. Treasuries due to the inverted yield curve and the strong dollar. It will be interesting to see what yield new buyers will come in at and how the level of Treasury yield will eventually decide the valuation for risk markets.    




1Fitch Ratings – Fitch Downgrades the United States' Long-Term Ratings to 'AA+' from 'AAA'; Outlook Stable; 8/1/23

2Fidelity – Munis weaker as investors digest larger supply, economic data, Fitch downgrade; 8/2/23

3CNN Business – Amazon’s stock surges as Q2 earnings show profit and sales jump; 8/3/23

4Reuters – US job growth slowing, but wage gains remain strong; 8/4/23

5Bloomberg – US Treasury Boosts Quarterly Borrowing Estimate to $1 Trillion; 7/31/23

Tags: Fitch Ratings | Risk Markets | Treasury yield | Inflation | Economic data

< Go to Monday Morning Perspectives

This blog post is for informational use only. The views expressed are those of the author(s), and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.

Any statements about financial and company performance of The Penn Mutual Life Insurance Company or its insurance subsidiaries (each, “Client”) made by the author is provided with a written consent from the Client.  Penn Mutual Asset Management is a wholly owned subsidiary of The Penn Mutual Life Insurance Company.

Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice.  The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete.  Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements.  Actual results may differ significantly.  Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.

Investing involves risk, including possible loss of principal.  Past performance is no guarantee of future results.  All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. There is no representation or warranty as to the accuracy of the information and Penn Mutual Asset Management shall have no liability for decisions based upon such information.

High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.

All trademarks are the property of their respective owners. This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission.

Subscribe to Our Publications