US Treasuries saw a massive rally on Friday with yields dropping by over 20bp across the 2Y and 5Y while 10Y yields fell 15bp. The move occurred after the keenly awaited jobs report numbers came out. US Non-Farm Payrolls (NFP) came at 223k for December, higher than the surveyed 202k but lower than last month’s revised 256k print. The unemployment rate was at 3.5%, higher than surveyed 3.7% but lower than last month’s revised 3.6%. However, bond markets were boosted as Average Hourly Earnings YoY fell to 4.6%, lower than the surveyed 5% and last month’s revised 4.8% print, implying a softening in wage inflation. Besides, the ISM Services PMI for December saw a contraction to 49.6, after 30 consecutive months of growth. Among this, the inflationary ‘Prices Paid’ component fell to 67.6 from 70 in November. Also, components like new orders and inventories saw a contraction at 45.2 and 45.1 respectively in December from 56 and 47.9 in the November. Both, the wage inflation and soft ISM Services data points saw market participants price in either a slower path to Fed rate hikes this year. All eyes now focus towards the CPI print that is expected at 6.5% for December, a drop from 7.1% in November. The data is due on January 12.
The peak fed funds rate was down 8bp to 4.96% for the June 2023 meeting. The probability of a 25bp hike at the FOMC’s February 2023 meeting stands at 76% from 68% before the jobs report. US equity markets ended sharply higher, with the S&P and Nasdaq up 2.3% and 2.6% respectively. US IG and HY CDS spreads were 1.5bp and 258bp tighter.
European equity markets ended higher. The European main and crossover CDS spreads tightened by 1.8bp and 23bp respectively. Asian equity markets have opened higher today, taking cues from the west. Asia ex-Japan CDS spreads tightened by 6.9bp.
New Bond Issues
- Sunny Optical $ 3.5Y SLB at T+235bp area
- Posco $ 3Y/5Y/10Y at T+225/255/295bp area
- Philippines $ 5.5Y/10.5Y/25Y Sustainability at T+155bp/T+195bp/5.95% area
New Bonds Pipeline
- Mongolia hires for $ bond
- Woori Bank hires for $ 3Y Sustainability or 5Y Sustainability bond
- SK Hynix Plans $ 3Y, 5Y SLB and/or 10Y Green
- Argentina Local Currency Rating Lowered To ‘SD’ On Distressed Debt Exchange; ‘CCC+’ Foreign Currency Rating Affirmed
Term of the Day
PMIs or Purchasing Managers’ Index are an index composed of a monthly survey of purchasing managers/supply chain managers across industries. This is a diffusion index, a statistical measure of summarizing the common tendency of a series – if there are more number of values rising than falling, the index is above 50 and the index goes below 50 if the falling values exceed those rising. For PMIs, a value below 50 indicates contraction and a value above 50 shows expansion. These surveys are taken over different areas of the supply chain business: New Orders, Employment, Inventories, Supplier Deliveries and Production covering imports, exports, prices and backlogs. In most countries, Markit publishes the PMI numbers while other organizations publish them too. Markit generally publishes the month’s PMIs in last week of the month. In the US, the ISM PMI is the official PMI data and it comes during the first week of every month. This is a useful soft indicator to identify how GDP is expected to be during that period.
On Bond Rally Giving Early Win to Wall Street’s 2023 Yield-Curve Bet
Alex Li, head of US rates strategy at Credit Agricole
“The yield-curve steepening we’ve seen post payrolls reflects a sigh of relief that strong wage gains are probably behind us, which is good news for the Fed. They’re probably closer to the end of the tightening cycle, though they still have work to do.”
Priya Misra, head of global rates strategy at TD Securities
“Recession fears will increase demand for the long end”
On Year of the Bond Starts With a $150bn Spree
Barclays Capital’s investment-grade debt syndicate co-head, Meghan Graper
“Three quarters of supply in any given month this year came in a matter of five business days… We’ve had a record setting zero-volume days in the primary market. And then everybody running through the same narrow window.”
On Traders Slash Fed Bets After Data; Key Yield Inversion Deepens
John Brady, MD at RJ O’Brien
“Bad news is now good news, as the softer non-manufacturing ISM report, combined with the soft wage data within payrolls, has given a bid to risk”
On Summers Sees ‘Tumult’ in 2023 With Reckoning for Bond Market
“I suspect tumult. This is going to be remembered as a ‘V’ year when we recognized that we were headed into a different kind of financial era, with different kinds of interest-rate patterns… But I think the judgment that soft landings are the triumph of hope over experience continues to be the right best guess”