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US Treasury yields inched higher led by the 2Y that rose 7bp to 5.1% and the 5Y that was up 4bp. At Jackson Hole, Fed chair Jerome Powell said that they were “prepared to raise rates further” and that they would “proceed carefully as we decide whether to tighten further”. He also mentioned that rates were high enough to be “restrictive”. As a result, the peak Fed Funds rate was higher by 3bp to 5.49%. CME probabilities for a 25bp hike in November rose to 48% from 33% a week ago. US IG credit spreads were tighter by 2.5bp while HY CDS spreads tightened 9.9bp. The S&P and Nasdaq were higher by 0.7% and 0.9%.
European equity markets were marginally higher. In credit markets, European main CDS spreads were 0.7bp tighter while Crossover CDS tightened 2.2bp. Similar to Powell, ECB President Christine Lagarde said that they would set borrowing costs as high as needed and leave them there for as long as it takes to bring inflation back to its goal. Asian equity markets have opened higher this morning. Asia ex-Japan CDS spreads widened by 0.7bp.
downgrades Longfor’s ratings to Baa3; places ratings on review for further downgrade
A goldilocks economy is a term used to characterize a state of the economy when it is neither growing too fast nor too slow. This is the ideal rate of growth where interest rates don’t move much higher as inflation doesn’t rise too much, nor do rates fall since the economy is growing at a moderate pace, hence reducing uncertainty of monetary policy.
On Emerging-Market Funding Getting Creative as Dollar Bonds Dry Up
“If demand is greater than supply that tends to be good for bonds. In many cases it makes sense to be invested and then switch into a cheap new issue rather than wait.”
Sergey Goncharov, a money manager at Vontobel Asset Management
“The latest BRICS headlines point even more in the direction of new countries willing to form alternatives from the standard Western blocs. As EM countries issue less debt, they instead pivot towards alternatives”
Reza Karim, an investment manager at Jupiter Asset Management
“For higher-rated issuers who can wait to issue, they would rather issue later to have a better chance of borrowing cheaper”
On seeing another rate hike and rate cuts may have to wait – Cleveland Fed President Loretta Mester
“We just don’t want it to keep drifting farther out… The longer we let inflation remain above 2%, we’re building in a higher and higher price level… I’m going to have to reassess that because, again, it’s going to be, how quickly do you think inflation is moving down?… I do not want to be in a position of prematurely loosening policy”
On ECB rate pause now may be too early – Governor, Latvia Central Bank, Martins Kazaks
“Given the information that we have now – and there is of course more data to come – I would say that another modest increase would be playing it safer, rather than delaying it and then risking having to do much more later in the year or early next year”
On Rates may have to stay high ‘for some time yet’ – BoE’s Ben Broadbent
“As such, monetary policy may well have to remain in restrictive territory for some time yet”… would respond to “the evidence on spare capacity, and to indicators of domestic inflation, as and when it comes through”
Country Garden delays $535mn onshore bond extension deadline at last minute