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The S&P gained 0.3% while Nasdaq slipped 0.5% on Monday. The US ISM Manufacturing Index fell to 60.7 in April from March’s 37Y high of 64.7 and well below the 65.0 market forecast. US 10Y Treasury yields slipped 3bp to 1.60%. Meanwhile, the US Treasury announced an increase in projected government borrowing in 2Q2021 to $463bn due to pandemic-related spending. US IG CDS spreads were 0.2bp tighter and HY tightened 1.3bp. Asian equity markets are mixed with China’s equity index shut for labor day. Asia ex-Japan CDS spreads were 1.6bp tighter with five new bond deals launched this morning.
Century bonds are often of great interest to the hedge fund community because of the so-called “high convexity” of the securities. “The convexity of a bond is a measure of the curvature, or degree of the curve, in the relationship between bond prices and bond yields. It shows how the duration of a bond changes as interest rates change,” explained Ioannis Rallis of the SSA team in JP Morgan. “With a high convexity bond, the price falls less if yields go up than it increases when yields go down. That asymmetry is very interesting for some investors who can use it as a hedge if interest rates, as some expect, have further to fall.”