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US Treasury yields rallied by 4-10bp across the curve on Tuesday. The ISM Services PMI index for the month of November came in at 52.7 v/s 51.8 in October, beating forecasts of 52. The reading pointed to stronger growth in the services sector, amid faster increases in business activity and employment. JOLTS, the number of job openings, decreased by 617k from the previous month to 8.7mn in October, against the market consensus of 9.3mn, marking the lowest level since March 2021. US credit markets saw IG CDS spreads widen 0.5bp and HY widening by 3bp. Equity markets ended slightly positive on Tuesday, with the S&P ending almost flat and Nasdaq up by 0.3%.
European equity markets too ended in mixed. In credit markets, European main CDS spreads were wider by 0.4bp and crossover spreads widened by 3.8bp. Asian equity markets have opened broadly positive today. Asia ex-Japan IG CDS spreads were wider by 3.1bp.
A Selective Default (SD) credit rating is assigned by S&P when the rating agency believes that the obligor/issuer has selectively defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner. A rating on an obligor/issuer is also lowered to D or SD if it is conducting a distressed debt restructuring.
On Fed Losing Control of Messaging on Interest Rates
Mohamed El-Erian, Chief Economic Adviser at Allianz
“The whole point of forward guidance is for the markets to listen to you and for the markets to do the heavy lifting for you. What we’re seeing now is forward guidance, is being completely ignored by the market. The market’s basically telling the Fed ‘I don’t care what you think about an interest rate that you set, I think you’re gonna do something completely different’. That’s quite a statement from the market to the Fed.”
On Spikes in Overnight Repo Lending Rates
Gennadiy Goldberg, Head of US interest rates strategy at TD Securities
“It looks, walks, and talks like September 2019, but yet I don’t think it’s being driven by quite the same reserve scarcity reasons this time around.”
Subadra Rajappa, Head of US interest rates strategy at Societe Generale
“This might be a dealer balance-sheet story than a shortage of reserves story. A bunch of collateral consistently hitting the market over the last few months heading into month-end is probably contributing to the spike in repo.”
Brian Moynihan, CEO of Bank of America
“The reality is there’s going to be a slowdown, but we just got to be positive. Money is coming out of customer accounts and consumer spending has ‘levelled out’, that’s all good news that the economy has normalised.”
Gennadiy Goldberg at TD Securities
“The Treasury market’s rally is approaching concerning levels, particularly at the back end of the curve. We’ve been long on 10Y since 4.70, and I’m certainly not complaining. But I do think you’re seeing a bit of an overstretch. If we got closer to 4%, I think I would take my foot off the gas pedal. I think you have to play this tactically.”
Krishna Guha at Evercore
“We are wary about market rate-cut bets piling up too much. We find it hard to envisage a cut before June without a recession — and still see a three-cut baseline in a soft-landing scenario.”