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US Treasury yields moved higher by 4-6bp across the curve on Friday. The Headline US PCE Deflator grew 2.9% YoY in December, slightly lower than expectations of 3%. The Core PCE Deflator grew 2.6% YoY, in-line with estimates. Looking at credit markets, US IG CDS spreads tightened 0.4bp and HY spreads were flat. Equity markets saw the S&P and Nasdaq drop 0.1% and 0.4% respectively.
European equity markets ended higher. Credit markets in the region saw the European main CDS spreads tighten by 0.8bp and crossover spreads tighten by 2bp. Asian equity markets have opened in the green today. Asia ex-Japan IG CDS spreads widened by 1.7bp. Separately, sources noted that the Chinese securities regulator has asked some investors/asset managers to refrain from increasing exposure to LGFV dollar bonds with tenors of less than a year.
Fitch Downgrades GOL to ‘D’
Gol Linhas Aereas Inteligentes S.A. Downgraded To ‘D’ On Chapter 11 Bankruptcy Filing
Fitch Downgrades Lippo Malls Indonesia Retail Trust to ‘C’ on Distressed Debt Exchange
Moody’s downgrades Volcan’s ratings to Caa3; outlook remains negative
Plastic Credits Bonds are bonds issued wherein the proceeds will fund plastics collection and recycling projects. The World Bank and Citi have launched a $100mn bond where repayments on the notes are partly determined by the sale of plastic and carbon offset credits. The notes will fund plastics collection and recycling projects in Ghana and Indonesia. Investors in these bonds will receive principal back at the end of the seven year maturity, guaranteed by the World Bank alongside a minimum interest payment of 1.75%.
On signs the Fed’s pivot is underway before even a single rate cut
Luke Tilley, the chief economist at Wilmington Trust Investment Advisors
“Their communication has gone from being way too hawkish and started to turn to what is more likely to happen and preparing for the start of cuts. The switch takes a while and they are moving in that direction”
Krishna Guha, vice chairman at Evercore ISI
On US prices rising moderately in December; inflation trending lower
Chris Low, chief economist at FHN Financial
“Inflation at 2.0% on a quarter-on-quarter basis, for two quarters in a row, is a good reason to start cutting rates… year-on-year core CPI at 2.9% gives the Fed cover to wait a few months longer and still fulfill Powell’s prediction”
Gregory Daco, chief economist at EY-Parthenon
“We continue to expect a solid consumer spending performance in 2024, but momentum may be a little more subdued”
On Bets on ECB Cut in April Are ‘Too Aggressive’ – State Street
“The pricing for April is a little bit too aggressive… might even take June out given June isn’t technically the summer yet”… Lagarde “didn’t push back against an April cut and we got some hints from her the upward pressure on wages is easing”