Key themes for credit investors:

1) New issuance rallying sharply as demand remains strong from pension, annuity sales, and retail. Credit spreads continue to tighten and are trading near the tight end of the two-year range. Beta compression remains a key theme across credit, with the exception of CCCs.

2) Credit spreads are tight, but all-in yields are attractive with a Fed cutting outlook. Strong demand from yield buyers should limit the extent of any spread widening, barring a material worsening in the macro backdrop.

3) Uncertainty about the ongoing soft landing will keep volatility elevated. Hard landing or reacceleration in inflation are still possible scenarios.

4) Mid-beta credit such as BBB debt offers the attractive combination of wide spreads and stronger sponsorship from yield-driven demand. Financial conditions have eased recently but funding costs remain high, which combined with slowing growth could impact firms with weak balance sheets. Elevated cash balances on investment grade corporate balance sheets could drive a pick-up in M&A activity.

Download hi-res chart(s)

Here are five key topics for investors.

Download hi-res chart(s)

The data for office use across the country shows that hybrid work is here to stay, see chart below.

The numbers show the average for a week where Wednesdays can be as high as 60%, and Mondays and Fridays as low as 30%.

The data is weekly and comes from 300,000 workers in 10 different cities, and in New York, the data covers 200 buildings and 70,000 workers.

The latest data shows that the lowest office occupancy rate is for Philadelphia at 37%, and the highest is Austin at 58%.

For more discussion of this topic, see also here.

Download hi-res chart(s)

The price of transporting a container is rising and air freight rates are increasing, but the ongoing supply chain problems are not broad based like the way they were during the pandemic, see our chart book available here.

Download hi-res chart(s)

If the Fed cuts in March, it will be eight months after the last Fed hike, which is exactly the average of all previous Fed hike cycles, see chart below.

Download high-res chart(s)

The average price of a hotel room in Manhattan is now $375 per night, see chart below.

Download high-res chart(s)

Home prices are in freefall in Germany, driven by higher rates, high construction costs, and massive amounts of red tape in the housing sector, see chart below.

This downtrend is in sharp contrast to the US, where home prices are rising.

With more persistent inflation in Europe, and the ECB therefore cutting after the Fed, the downward pressure on home prices is likely to continue.

Download high-res chart(s)

The main argument for the Fed cutting rates in March is that the Fed’s workhorse model says that because of the sharp decline in inflation over the past six months, the Fed funds rate today should not be 5.5% but 4.5%, see chart below. Specifically, the Fed has used the Taylor rule framework for decades to understand what the Fed funds rate should be, and inserting the current level of inflation and unemployment into the Taylor rule shows that the Fed funds rate today should be 4.5%, see chart below and Daily Spark here.

Download high-res chart(s)

Since the middle of the pandemic, the population has been declining in New York and California, and growing in Florida and Texas, see map below.

Download high-res chart(s)

The difference between European and US wage inflation is remarkable.

Both economies have a strong labor market, but US wage inflation is falling and Euro area wage inflation is trending higher.

The source of this difference is European trade unions, which often look back at last year’s consumer price inflation when articulating wage demands for the next year.

This inertia in wage formation is making inflation in Europe more persistent and more difficult to control for the ECB.

As a result, the Fed will cut rates before the ECB.

Download high-res chart(s)