Credit Spreads Tighten Further: HY Cash And CDS Indices Now Both About 15bp Tighter Since Turn In Sentiment Last Week

Investment grade issuers are slowly coming back to market with new billion-dollar offerings priced today from IBM, State Street, Alexandria Real Estate

ICE BofAML US Corporate Cash Indices | Sources: ϕpost, Refinitiv data


Solid Bounce Across USD HY As Equity Drawdown Turns And Risk-On Sentiment Returns

Still another quiet week in terms of corporate bond issuance, but a couple of sizeable FIG deals were priced today with Bank of America raising US$9bn in 5 tranches and Goldman Sachs €2.25 bn in 2 tranches

iBOXX USD Liquid Bonds Total Returns For IG & HY | Sources: ϕpost, Refinitiv data


Rising Yields And Widening Spreads Continue To Weigh On US$ Credit, With Liquid Indices Down 3.9% For IG And 3.0% For HY YTD

Rates volatility brought measly volumes of issuance for the week (IFR data): US$ 6.275 bn in 8 tranches for HY (HY 2022 YTD: $22.36bn vs 2021 YTD $49.605 bn) and US$2.6bn in 3 tranches for IG (IG 2022 YTD: $148.39 bn vs 2021 YTD $135.97 bn)

iBOXX USD Liquid IG & HY Bonds Total Returns Indices | Sources: ϕpost, Refinitiv data


Sharp Rebound For US Equities On Friday Takes The S&P 500 Up 0.8% For The Week, Brings Nasdaq Comp Back To Unchanged

The rise today was broad, with almost 90% of S&P 500 stocks closing up, and was led by Technology (up 4.3%), Real Estate (up 3.4%), and Telecoms (up 2.9%)

Year To Date Total Returns By Country | Sources: ϕpost, FactSet data


Energy Was The Big Story Again This Week In Commodities, With Brent Spot Above $90 And Nat Gas Up 16%

The failure of many countries OPEC+ to meet their quotas, combined with the slow / patient approach of shale producers is driving backwardation to levels where the back end of the curve will have to start catching up ($25/bbl spread between spot Brent Sullom Voe and December 2025 future)

Brent Crude Spot Price And December 2024 Calendar Spread | Source: Refinitiv


Risk Aversion, Rates Differentials Push The US Dollar Up Against Most Currencies This Week

Antipodean currencies are faring the worst among majors, as they're the most sensitive to global risk sentiment, with the Kiwi dollar now down over 4% year-to-date, and the Aussie pretty close to that as well

FX Majors Performance Year To Date | Sources: ϕpost, Refinitiv data


US Rates Move Towards Flatter Curve And Higher Volatility, As Expected After The FOMC

The front end of the curve rose about 20bp this week (almost a full additional hike priced into Fed Funds futures for this year), but the curve flattened by the same amount, with inflation breakevens higher and real yields lower (probably not what the Fed had in mind)

US Treasury Curve Spreads | Sources: ϕpost, Refinitiv data


US$ Credit Performing Very Poorly, Along With Equities, As Spreads Widen Across The Complex

Implied default probabilities are rising in credit derivatives, with a flattening of the term structure (yields are up the most at the front end of the rates curves)

CDX.NA.IG 5Y & CDX.NA.HY 5Y Implied Default Probabilities | Sources: ϕpost, Refinitiv data


Opinion: The Fed's Hawkish Tone At The FOMC Is Amplifying Volatility, Without A Clear Sense That It's Part Of A Credible Plan

Since Wednesday afternoon, front-end yields have risen further and the curve has flattened as a consequence of the Fed's new positioning, but we wonder whether that is a feature or a bug in their new strategy

US Treasuries 1s10s Spread | Source: Refinitiv

Cross Asset

FOMC Wrap-Up: Hawkish Fed Focused On Inflation, Spooks Market Into Pricing In More Than 4 Hikes This Year

The major risk outlined by Powell in his Q&A was that inflationary pressures might prove more long-lasting than the FOMC previously expected, notably wage growth in a very tight labor market

US Dollar Index & 3Y US Treasury Yield Intraday | Source: Refinitiv


Spreads Wider Across The Credit Complex, With The OAS On ICE BofA US Corporate CCCs Up A Whopping 24bp Today

Weekly volumes of US$ bond issuance (IFR data): 29 Tranches for US$38.79bn in IG (2022 YTD volume US$145.79bn vs 2021 YTD US$108.795bn) and 8 Tranches for US$4.27bn in HY (2022 YTD volume US$16.085bn vs 2021 YTD US$35.545bn)

1-Week Change In ICE BofAML US Corporate OAS By Rating | Sources: ϕpost, Refinitiv data


Sentiment In US Equities Very Depressed Although Implied Volatility, Skew Not At Extreme Levels

The tech meltdown and higher volatility has led to a more wholesale degrossing for long-short equity hedge funds, with net positioning and gross positioning now low according to some prime brokers

S&P 500 1-Month ATM Implied Volatility (top) & Skew Measured As 10-Delta Put - 10-Delta Call IV (bottom) | Source: Refinitiv