Leaders-Laggards

High yield spreads haven taken a break from their recent rally, but they’re holding, which means that a repricing of credit risk may be starting. Even if the flight to safety trade isn’t showing up in Treasuries, it sure looks like it is in the dollar. The violent whipsaws in this sector are an indication that the path of returns is never a straight line.

Utilities have managed to carry forward this powerful move for its third consecutive week, dismissing at least some of the notion that this is simply a one-off bounce. Credit spreads are the one thing that have remained relatively unfazed by growing global macro pressures. If those are finally starting to turn, it could be a sharp decline for junk bonds. Tech volatility remains higher than average as the attractiveness of the mega-cap trade begins to sour.

The past two weeks have easily been the most powerful move for utilities of 2023. While tech and growth have had their ups and downs this year, communication services has been the most reliably uptrending sector of the market. Treasuries are starting to demonstrate some weird behavior. Long bonds continue to underperform, but the time for this group may be nearing.