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US Treasury yields dropped by 3-4bp across the curve on Friday after an initial ~7bp drop, as risk-off sentiment took over due to geopolitical tensions in the Middle East. This came after the anticipation of a retaliatory attack by Iran on Israel, after the latter’s suspected strike on Iran’s consulate in Syria on April 1. The retaliation by Iran did happen over the weekend where it launched over 300 drones at Israel in an aerial attack.
Two Fed speakers came out on Friday with their comments on policy rates. Boston Fed President Susan Collins reiterated that there was no urgency to cut rates in the near term, given inflation came at the “high end” of what was expected and labor market resilience. San Francisco Fed President Mary Daly echoed the same comments, saying there was “absolutely” no urgency to adjust rates given the strong labor market, consumer spending, and the slower than expected moderation in inflation rate. Separately, the Michigan Consumer Sentiment Index for April came at 77.9, lower than expectations of 79.0 and the prior 79.4. US IG CDS spreads widened 1.8bp and HY spreads widened 6.7bp. The S&P and Nasdaq fell by 1.5-1.6%.
European equity indices ended broadly mixed. European IG CDS spreads widened 2.1bp and crossover spreads were 8bp wider. Asian equity markets have opened mixed today. Asia ex-Japan IG CDS spreads were 4.2bp wider.
Moody’s Ratings upgrades LATAM Airlines Group S.A (LATAM)’s ratings to Ba3; outlook remains stable
A fallen angel is a company or sovereign whose credit rating has been cut from investment grade to junk due to deteriorating financial conditions of the company. The downgrade to junk may have a negative impact on its bond prices as asset managers that are mandated to hold only investment grade debt may be forced to sell off their holdings in the fallen angels.
Longfor is an example wherein, it got downgraded from investment grade to high yield by S&P at BB+.
On Haven Demand Lifting Treasuries After Worst Two Days in Months
Gregory Faranello, head of US rates trading, AmeriVet Securities
Rally “is a combination of oversold market conditions and Treasuries being seen as a haven going into the weekend… the backup we have seen in two- and five-year yields offers good haven value in the short term”
On Emerging Markets Battle Weak Currencies as Dollar Crushes Peers
Marcella Chow, global market strategist at JPMorgan Asset Management
“Right now, we do see lots of verbal intervention from different central banks… might be more weakening with regards to Asian currencies “
Paul Mackel, global head of forex research, HSBC Holdings
“Asian central banks just can’t let down their guard… could also mean that actually the last mile of inflation is not only difficult for the US”
On ECB confidence in fight against inflation growing – Bank of France Governor, Francois Villeroy
“Barring surprises, we should decide a first rate cut during our June meeting. We are indeed growing more and more confident in the disinflation path… That being said, we will not go back to ultra low, even negative rates”