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Wall Street ended lower at the close of last week, which was dominated by the FOMC meeting update. S&P and Nasdaq were down 1.3% and 0.9% respectively resulting in weekly losses of 1.9% and 0.3% respectively. Sectors across closed in the red with Energy and Financials leading the drop, down ~2.5%. The yield curve bear flattened (Term of the Day, explained below) on Friday as the US 10Y Treasury yields dipped ~11bp to 1.41% while the shorter dated 2Y and 5Y yields moved higher. European markets also closed lower by ~1.5%. UK’s May retail sales were down 1.4% against expectations of an expansion of 1.6%. Germany’s Producer Price Index (PPI) rose 1.5% in May compared to a forecast of 0.7%. US IG and HY CDS spreads widened 1.3bp and 5.2bp respectively. EU main and crossover CDS widened 1bp and 5.6bp respectively. Saudi TASI fell 0.6% while Brazil’s Bovespa closed 0.3% up. Asian markets opened in the red. HSI was down 1% while Shanghai was marginally down 0.1%. Asia ex-Japan CDS spreads were 0.4bp tighter.
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Jinan Hi-Tech Holding raised $170mn via a 3Y bond at a yield of 2.5%, 50bp inside initial guidance of 3% area. The bonds have expected ratings of BBB.
Bull flattening refers to a change in the yield curve where long-end rates move down faster than short-end rates. This not only has a flattening effect on the entire yield curve but also has a net effect of interest rates moving lower and bond prices moving higher. If the yield curve moves lower and bond prices move higher, it is considered a bull move, while the opposite is a bear move. In last Friday’s move 2Y treasury yields were flat while the 10Y and 30Y yields fell 11-12bp making the 2s10s and 2s30s yield curve flatter led by the 10Y and 30Y yields, a bull flattening move. This can be seen in “The Week That Was” US Treasury Curve chart.
On US Treasury yield curve flattening as Fed seen more proactive on inflation