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US Treasuries rallied on Friday, following the jobs data, with the 2Y yield down 13bp and the 10Y yield down 8bp. The Peak Fed Funds Rate was down 5bp. US NFP for October rose by 150k, lower than the surveyed 180k and last month’s 336k. The Unemployment Rate was at 3.9%, higher than the surveyed 3.8%. Average Hourly Earnings YoY was at 4.1%, higher than the surveyed 4.0%. Also, US ISM Services came at 51.8 for October, lower than the estimated 53 and prior month’s 53.6. US credit markets continued to tighten – IG CDS spreads tightened 2.3bp and HY spreads tightened by 14.1bp. S&P and Nasdaq rose 0.9% and 1.9% respectively.
European equity markets closed higher too. In credit markets, European main CDS spreads were tighter by 1.8bp and crossover spreads tightened by 6.2bp. Asian equity markets have opened higher today. Asia ex-Japan IG CDS spreads tightened by 7.3bp.
Ittihad International raised $350mn via a 5NC2 debut sukuk at a yield of 9.75%, after an initial guidance in the high 9% area. The bonds have expected ratings of B+/B+ (S&P/Fitch), and received orders over $515mn, 1.5x issue size. Proceeds will be used to refinance existing debt, & cover transaction fees and expenses.
Senior non-preferred (SNP) notes are type of debt security that banks issue as part of their Tier 3 capital. These bonds have an inherent bail-in feature where in the case of bankruptcy, creditors holding these notes may be subject to conversion into shares. In a liquidation scenario, SNP bonds are ranked higher than Subordinated Bonds. However, they are rank inferior to Senior Preferred Bonds or Senior Unsecured Bonds.
“My outlook is that we are going to stay on that slow and steady (growth path) and if we continue to do that, then I think where we are now will be sufficiently restrictive to get us to the 2% level for inflation… pleased with where the number came in… there’s still a lot that’s going to happen between now and even the next meeting.”
On The Bond Market’s Fighting Chance to Avoid Historic Losing Streak
Gregory Faranello, head of US rates strategy for AmeriVet Securities
“The economic trajectory is lower. We’ve been looking for rates to correct lower.
Rick Rieder, BlackRock CIO of global fixed income
“The Fed is done. That’s it. Inflation is coming down. Payroll, labor, has finally started to come off a bit. It’s a big deal”
Kevin Flanagan, head of fixed-income strategy at WisdomTree
“It’s not as if the Fed’s going to cut rates anytime soon. What we’ve been doing is shortening our underweight to duration”
“People are a little bit in too much of a hurry to declare that we’ve done all the monetary policy that we need to do. The very dramatic response we’ve seen make me not as certain as many people that the job of containing inflation is over and that the war is done”