This site uses cookies to provide you with a great user experience. By using BondbloX, you accept our use of cookies.
US Treasury yields rose across the curve with the 2Y and 5Y yields up 10-12bp and 10Y up by 7bp following the strong jobs report. US Nonfarm Payrolls rose by 199k in November, higher than estimates of 185k and October’s 150k. The Unemployment Rate fell to 3.7% from October’s print and estimates of 3.9%. Average Hourly Earnings were steady showing a 4% YoY increase, similar to October. US credit markets saw IG CDS spreads tighten by 0.9bp and HY by 3.4bp. Equity markets ended in green on Thursday, breaking a three day losing streak, with the S&P and Nasdaq up by 0.4-0.5%.
European equity markets ended higher. In credit markets, European main CDS spreads tightened by 0.1bp and crossover spreads tightened by 0.5bp. Asian equity markets have opened slightly weaker today. Asia ex-Japan IG CDS spreads were tighter by 1.2bp. China’s consumer prices fell 0.5% YoY in November, the steepest drop in three years. Producer prices dropped even further into negative territory. The producer price index (PPI) fell 3.0% year-on-year against a 2.6% drop in October, marking the 14th straight month of decline and the quickest since August, underscoring the challenges facing the economic recovery.
The Treasury Basis Trade is a trade which involves buying/selling a treasury bond and simultaneously taking the opposite position in a corresponding treasury futures contract. When a trader buys the bond and sells the futures, it is considered to be a ‘long basis’ trade and when he/she sells the bond and buys the futures, it is a ‘short basis’ trade. Fed economists reported that the cash-futures basis positions could be exposed again to stress during broader market corrections. The unwinding of basis trades contributed to illiquidity in Treasuries in March 2020 and Fed economists want to prevent another event of a similar origin. Authorities want any unwinding of the trade to happen in an orderly manner.
On Fed pivot to interest-rate cuts seen likely to start in May
Nationwide economist Kathy Bostjancic
“We maintain our call for the Fed to start cutting rates by mid-year, but it is contingent on inflation continuing to trend lower and further weakening in economic activity”
On US November payrolls growth hurting case for early ’24 Fed cuts
Matthew Miskin, Co-chief Investment Strategist, John Hancock Investment Management, Boston
“It’s a relatively strong report. The unemployment rate is ticking down a little bit. The headline number is solid… There was a bit more wage growth and I think that’s causing the 10-year Treasury yields to rise… don’t think this gives the Fed the ability to pivot. It’s not weak enough “
Stuart Cole, Head Macro Economist, Equiti Capital, London
“The picture being painted as far as the Fed is concerned will likely be one of a labour market that remains strong and showing no real signs yet of buckling under the weight of the interest rates rises”
Tony Roth, Chief Investment Officer At Wilmington Trust, Philadelphia
“These numbers today are inflationary… increasing pressure around the Fed to pivot to a more accommodative message, and these numbers are going to give the Fed cover to continue that very hawkish approach.
On Standout EMB Bond Bet Set for Another Boost in 2024
Ricardo Navarro, head of LatAm fixed income at Itau Unibanco
“The closer we get to the Fed rate cut, the more investors will tilt toward local currencies. Investors want yield pick-up, and the thesis there is that without the Fed hiking further, you might as well get the bigger yield in EM currencies”
Pimco’s head of EM debt, Pramol Dhawan
“We continue to be bullish. In fact, even more bullish now”