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US Treasury yields inched higher across the curve by 3-4bp to begin the week after a quiet trading day yesterday due an extended weekend on account of Juneteenth. Market participants continue to expect the Fed to hike rates by 25bp in July with a 72% probability with the peak Fed Funds rate unchanged at 5.30% for September. For the first time, the yield on 3m T-Bills, IG bonds, & the S&P are the same, indicating a lower compensation for investing in risk assets. HY bonds however yield about 300bp higher than the above three assets.
European equity indices closed lower. European main CDS spreads were 1bp wider and Crossover spreads widened 5.1bp. Asia ex-Japan CDS spreads widened by 1bp with Asian equity markets have opened lower this morning.
Bail-in debt refer to bonds which would be written off in a crisis, before depositors would lose any money. Thus, in the event of a failure or likely failure of a bank, shareholders and bondholders may be bailed-in (bear some of the burden of writing-off debt) to absorb the losses, instead of a bailout by taxpayers.
On Vedanta planning to invest $1.7bn in FY24 on growth projects: Chairman Anil Agarwal
“We envisage committing another USD 1.7 billion in FY 2024 towards growth projects… Our oil and gas operations, which account for nearly one-quarter of India’s production, is also diversifying its reserves and resources portfolio towards a vision of contributing 50 per cent to India’s total Oil and Gas production”
On the Central Bank of Egypt’s Interest Rate Decision
Noaman Khalid, economist at the National Bank of Kuwait
“The authorities seem keen to keep the currency steady for now, which removes a possible trigger for higher rates.”
Pascal Devaux, economist at BNP Paribas
“(We) expect the CBE to keep rates on hold given expected better FX liquidity in the short term and lower probability of another EGP devaluation.”
On Portfolio Allocation on High Yield Bonds – strategists at Morgan Stanley
“Portfolio allocation should be shifting back into high yield from investment grade, supported by both valuations and positioning…Nearly all the value resides in the single B and below rated space.”
On Turkey’s Shift Towards Conventional Policy – Turkey’s Treasury and Finance Minister Mehmet Simsek
Simsek signaled in two meetings with bankers and business people last Friday that adjustments will be made slowly to avoid unwanted side-effects, with any steps only taken after analysing their potential effects on the economy.
On Turkish Rate Hike Projections
Goldman Sachs Economists
These economists project that the Turkish Central Bank will lift its key rate to 40% from the current 8.5%.
BofA Economists
These economists project the rate will be raised to 25%, but notes a possibility of a downside surprise, as well as the possibility of guidance by Turkish authorities for further, less aggressive hikes in future meetings.
Deutsche Bank Economists
These economists expect the rate to be initially raised to 20% in June, but notes the possibility of guidance by Turkish authorities for further, less aggressive hikes in future meetings.
StanChart Economists
These economists see the key rate going up to only 14%.
“There is expectation that any policy support is likely to be implemented at a targeted, city level as opposed to something which will be across the board…In the absence of any strong, meaningful measures I really find it hard to see stronger momentum in Chinese property bonds”