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US Treasury yields broadly trudged lower on Friday with the 10Y down 4bp, while the 2Y moved 3bp higher. The University of Michigan’s consumer sentiment index rose 9.1 points, the biggest monthly advance since 2005, to 78.8. The was the highest reading since July 2021, much above estimates of 67.0. The survey’s reading of 1Y inflation expectations fell to 2.9% this month, the lowest level since December 2020. That was down from 3.1% in December. Also, the 5Y inflation outlook slipped to 2.8% from 2.9% in the prior month, below estimates of 3.0%. US IG CDS spreads tightened 0.7bp and HY spreads tightened 5bp. S&P and Nasdaq rallied 1.2% and 1.7% respectively.
European equity markets ended flat. Credit markets in the region saw the European main CDS spreads tighten by 1.1bp and crossover spreads tighten by 5bp. Asian equity markets have opened weaker today. Asia ex-Japan IG CDS spreads tightened by 2.6bp.
Mexico raised €2bn via an 8Y sustainability bond at a yield of 4.493%, 30bp inside initial guidance of T+210bp area. The bonds are rated Baa2/BBB/BBB-. Proceeds will be used for budgetary programs that qualify as eligible expenditures under the SDG Sovereign Bond Framework.
Moody’s downgrades Huarong AMC to Ba1; outlook negative
The iTraxx Crossover Index is a credit default swap (CDS) based index compiled by IHS Markit (now part of S&P Global) which consists of the 75 most liquid sub-investment grade entities in Europe. The index helps track credit risk in the European high yield market, akin to the Markit HY CDS Index in the US. Performance is tracked in terms of the index’s value and the move in the spreads of the index. A tightening (a move lower) in its CDS spreads implies an easing of credit conditions in the European junk-bond markets which leads to an increase in the value of the index. On the other hand, a widening in its spread (a move higher) implies a worsening in credit conditions, which would lead to a fall in the index’s value. While the iTraxx Crossover Index helps track European high yield spreads, the iTraxx Main index helps track European investment grade spreads. The iTraxx Main index consists of 125 of the most liquid European entities with IG-ratings as published by Markit from time to time.
“The pain trade really is — doesn’t mean it’s going to come about — but068805 the thing the markets are most ill positioned for is really 10-year rates at 3%… that is one scenario that is not priced in the market, and we should pay a little bit more attention to that… 10-year is an ideal part of the yield curve to position for that potential outcome”
On Bad Week for Bonds Worsening With Yields Reaching Year’s Highs
William Marshall, head of US interest-rate strategy at BNP Paribas
“The idea that inflation is coming down quickly is quite clearly priced into the market, but that needed support from the activity side of the equation, and we didn’t get that”
On The Easy Money Already Been Made in Bonds
Adam Darling, a high-yield bond fund manager at Jupiter Fund Management
“This is a month to sell risk into a rally…If data indicates anything other than a soft landing there will be a lot of panic… We would be amazed if we didn’t have at least one spread selloff this year… could have a selloff on even a small piece of bad news”