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US Treasury yields have begun the new year unchanged over the prior trading day, with the 2Y yield at 4.25% and the 10Y at 3.87%. The US Treasury continued to issue 2Y, 5Y and 7Y notes as part of its auction calendar last week. Weekly jobless claims in the US rose unexpectedly last week to their highest levels in December at 218k, above the prior week’s 206k and forecasts of 210k. The peak Fed Funds Rate is unchanged at 5.29%, and markets are currently pricing in 150bp in rate cuts over the course of 2024. US credit markets closed the year with IG CDS spreads at 56bp and HY spreads at 356bp. US equity markets ended lower on the last trading day of 2023 (December 29) with S&P and Nasdaq falling by 0.3-0.6%.
In Europe, credit markets saw the European main CDS spreads close at 57bp and crossover spreads at 314bp. Asian equity markets have opened weaker today. Asia ex-Japan IG CDS spreads closed the previous year at 90bp, its tightest levels through the year. China’s manufacturing activity shrank for a third straight month in December and weakened more than expected. The PMI fell to 49 in December, from 49.4 the previous month, indicating contraction.
Fitch Downgrades Ethiopia’s LTFC IDR to ‘RD’
Distressed Debt Exchange (DDE) is an offer made by a company to its bondholders to avoid bankruptcy, improve liquidity, reduce debt, manage its maturity dates (by exchanging debt securities that are coming due for debt securities with an extended maturity) and to reduce or eliminate onerous covenants.
On US 10Y Yield Ending 2023 Almost Exactly Where It Started
Jack McIntyre, PM at Brandywine Global
“For the long end of the US Treasury curve, you earned the coupon but — stress adjusted — it felt like you lost money on bonds in 2023. 2024 will be another volatile year”
On Rally Making Stocks Vulnerable With US Recession Still Likely
RBC economist Eric Lascelles
“The risk of recession has gone down modestly, but the market’s pricing suggests it’s gone down remarkably. What’s baked into the cake is a sizable jump in earnings, which is really only achievable in a soft-landing… dominating performance of US equities for more than a decade could be ripe for reversal”
On Higher forever? As markets see few rate cuts after 2024
Allianz Global Senior PM, Mike Riddell
“It’s just normalizing policy. It’s not going into easy monetary policy”
Former Fed economist Idanna Appio
“I’m sceptical that there’s been much of a change in R- star”
Patrick Saner, head of macro strategy at Swiss Re
“It means that corporates will need to refinance at reasonably to sometimes significantly higher rates than what they had in the books over the last five years”