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US Treasury yields surged higher across the curve, as volatility continued to weigh on markets. Yields were higher by 9-11bp across the curve, reversing a a risk-off rally in Treasuries earlier last week due to Middle East geopolitical tensions. Richmond Fed President Thomas Barkin said that he sees no signs yet on overheating in the US economy. US IG CDS spreads tightened 0.7bp and HY spreads were 3bp tighter. The S&P fell by 0.9% while the tech heavy Nasdaq dropped by 2.1% respectively. S&P 500 saw its worst week since March 2023, extending a drawdown from its all-time high to more than 5%.
European equity indices ended mixed. European IG CDS spreads widened 0.2bp while crossover spreads were 4bp wider. Asian equity markets have opened mixed red today. Asia ex-Japan IG CDS spreads were 1.7bp wider.
A Credit Default Swap (CDS) is a financial contract between two counterparties that allows an investor to “swap” or offset the credit risk with another investor. CDS acts like an insurance policy wherein the buyer makes regular payments to the seller to protect itself from an issuer default. In the event of a default, the buyer receives a payout, typically the face value of the bond or loan, from the seller of the CDS as per the agreement. CDS spreads are a commonly used metric to track the market-priced creditworthiness of an issuer. A widening (increase) in CDS spreads indicates a deterioration in creditworthiness and vice-versa.
On ECB Shouldn’t Rush Further Rate Cuts After June – ECB GC Member, Madis Muller
“We should be careful not to move too quickly with the loosening of monetary policy and wait until the data gives us the necessary confidence”
On Policy to Remain Accommodative for a While – BOJ’s Kazuo Ueda
Monetary policy will stay accommodative for a while. BOJ would eventually reduce its bond buying at an unspecified timing in the future.
On ‘Healthy But Not Overheated Demand’ – Richmond Fed’s Thomas Barkin
“We’re in a situation today where demand is robust, but I see no signs yet that it’s overheating. And overheating would lead to pressure on wages… It’s very clear to me as I talk around the economy that there are significant sectors where financial conditions are tight”