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US Treasury yields rose 3-4bp across the curve with markets awaiting Jerome Powell’s comments later today at 10:05 AM Washington DC time. Initial jobless claims for the prior week in the US decreased by 10k to 230k, better than estimates of 240k. US IG credit spreads were wider by 2.5bp while HY CDS spreads widened by 17bp. The S&P and Nasdaq dropped by 1.4% and 1.9% reversing the gains seen on Wednesday.
European equity markets moved lower too. In credit markets, European main CDS spreads were flat while Crossover CDS widened 2.2bp. Turkey raised its benchmark rates by 750bp to 25%, its highest level since 2019 (scroll for more details). Asian equity markets have opened lower this morning. Asia ex-Japan CDS spreads widened by 4.8bp.
Singapore raised S$2.80bn via a tap of its existing green 3% 2072s at a yield of 3.04%, 11bp inside initial guidance of 3.15% area. The bonds are unrated but its issuer rating is Aaa/AAA/AAA . Proceeds will be applied in accordance with SINGA and the Singapore green bond framework. On top of the S$2.75bn institutional tranche, the tap also comprises a retail tranche of S$50mn. IFR notes that the green bond was sold to strong demand from institutional investors, receiving orders over S$3.9bn, 1.4x issue size, but the retail tranche drew a lacklustre response from the Singapore public.
The neutral rate, aka natural rate or R* is the theoretical federal funds rate at which point the US Federal Reserve monetary policy is neither accommodative nor restrictive. In other words it is the short-term real interest rate that is consistent with the economy maintaining full employment and price stability. This rate is inferred and calculated via models and varies based on economic and financial market factors.
On Bond Traders Obsessing Over R* Before Jackson Hole
Calvin Yeoh, Merlion Fund manager at Blue Edge.
“For most traders, R* is like the appendix – assumed to be irrelevant to daily life until it suddenly bursts and makes you painfully care about it”
Sally Auld, CIO at JBWere
“If the Fed moves toward the idea that R* could be higher than current estimates of 2.5%, the main implication of that would be that policy is not as restrictive as we might’ve previously assumed”
Jay Barry, head of US government-bond strategy at JPMorgan Chase
“We think it’s somewhat unlikely the chair’s comments will foreshadow a larger change to the longer-run dot at the September FOMC meeting”
On Two Fed officials tentatively embracing bond yield jump
Philadelphia Fed President Patrick Harker
“Right now I think that we’ve probably done enough… We are in a restrictive stance, do we have to keep going even more and more restrictive?”
Boston Fed President Susan Collins
“We may be near, we could even be at a place where we would hold… But certainly additional increments are possible, and we need to look holistically and be really patient right now and not try to get ahead of what the data will tell us as it unfolds”
On Wrong to Bet on a ‘Painless Disinflation,’ – AQR Capital’s Jordan Brooks
“Central banks care about maintaining low and stable inflation, and I don’t think markets fully grasp that. There is a view that the Fed put is alive and well, and ultimately, that the Fed might not have the resiliency to maintain tight policy if economic conditions get weaker”
On It Being ‘Much Too Early’ to Consider Rate Hike Pause – ECB GC member Joachim Nagel
“It’s for me much too early to think about a pause. We shouldn’t forget inflation is still around 5%. So this is much too high. Our target is 2%. So there’s some way to go”