Fixed income investors have been pricing in the rate cut Wednesday for the last few weeks, which has pushed rates lower. Fixed income groups on the Asset Class Group Scores page have seen their overbought/oversold readings reach elevated levels.

Fixed income investors have been pricing in the rate cut Wednesday for the last few weeks, which has pushed rates lower. Fixed income groups on the Asset Class Group Scores page have seen their overbought/oversold readings reach elevated levels. The All Fixed Income group has a weekly overbought/oversold reading of 131%, near the highest levels over the last five years. Still, the All Fixed Income group ranks fifth out of the six major asset classes on the ACGS page with an average score of 2.85. With fixed income exposure a must in most portfolios, it is encouraging to see the group steadily improve over the last few months. Aside from a tumultuous 2022, fixed income has struggled to trend in either direction with the occasional violent move to the upside or downside. With the group being as overbought as it is, there may be less of a reaction to the announcement of the first rate cut as the market has priced that in already, however, changes in economic projections could have a larger impact post-FOMC.

A fixed income indicator that often gets forgotten about in quiet times has retreated to levels last seen in February. The CBUS 10 Year Spread (CBUS10YRSPREAD) is at very low levels which shows the confidence investors are showing to corporate debt. This also shows while there is a higher yield associated with high yield debt than US Treasuries, it is not much to write home about. With little benefit to holding high yield corporate debt right now, I would be wary of overexposure to the area just to squeeze out slightly higher yields than elsewhere. High yield spreads could also move higher despite a lowering of the Fed Funds Rate if the Fed’s economic projections come out poorer than expected.