Risk-Off Move, Rates Differentials Combine To Push Yen, Swissie Higher Against The USD

One of the purest risk-off trades has been to go long Japanese Yen, short Aussie Dollar, and we expect to see this continue to play out over the course of the year

AUDJPY Spot Rate vs Nasdaq Composite Index | Source: Refinitiv


US Yield Curve Bull Flattens On Weaker Than Expected Jobless Claims, With Lower Inflation Breakevens, Lower Real Yields

The front end could rise further still (towards 5 hikes if inflation doesn't peak soon) but with nearly 4 hikes priced in for 2022 it's not a great quality trade; slightly further down the curve, only 2.5 hikes are priced in for 2023 and just 0.4 hike for 2024 (fewer than 3 over 2 years), selling EDZ23 or EDZ24 looks like a more asymmetric / attractive opportunity

Hikes Priced Into Fed Funds Futures For 2022 | Sources: ϕpost, Refinitiv data


Risk-On Sentiment Across Credit, With Tighter Spreads In US HY As Well As EM Sovereigns

YTD US$ IG issuance volume is now about $30bn ahead of YTD 2021, with another $15bn+ of deals priced today, led by Societe Generale's US$5bn, 5-tranches offering

HY CDS Spreads Are Wide Relative To Cash Spreads | Source: Credit Suisse


75% Up Day For S&P 500 Stocks, With Energy And Technology The Best Performing Sectors

As the Chinese economy is expected to start getting better in the second half of the year, the large underperformance of Chinese equities relative to the US and Europe may be about to turn around

Comparison of the recent price performance of US, European, Chinese Equities | Source: FactSet


Broad Fall In The US Dollar, With More Dovish Sentiment Around Powell's Confirmation Hearing

However, after a brutal repricing at the front end of the US yield curve last week, this move in the dollar may not last, and could simply be a temporary reprieve ahead of the latest CPI data tomorrow

Euro spot rate vs DE-US forward rates differential | Source: Refinitiv


Real Yields Drop And Breakevens Rise Across The Curve As Powell Appears Less Hawkish Than Expected In Senate Hearing

Market moves are looking increasingly binary: less hawkish Fed leading to reflationary trade with stronger medium-term economic outlook (rising TIPS 5s30s spread), versus extremely hawkish Fed rapidly bringing front-end rates much higher and hurting forward economic growth (falling TIPS 5s30s spread)

Week-to-date change in TIPS Breakevens | Sources: ϕpost, Refinitiv data


US IG Cash Spreads Stable, High Yield Spreads Widen Further (Now Up 15bp YTD)

Good start for the US$ investment grade primary market: nearly $14bn priced today after $62bn raised by corporates last week (2022 YTD IG volume at US$76.1bn vs 2021 YTD US$54.85bn according to IFR data)

1-Week Changes In USD Corporate Option-Adjusted Spreads | Source: ϕpost, ICE BofAML, Refinitiv data


Equities Drop At The Open, Pull Off Nice Intraday Comeback In The Afternoon To Close Basically Unchanged

The recent drop in technology stocks and rise in volatility has been terrible for ECM activity (IPOs, secondaries), with very little happening since the beginning of the year

Nasdaq Composite Prices Intraday | Source: Refinitiv


US Dollar Stages Modest Recovery After Big Drop On Friday, With Gains Against Euro, Swissie

One of the notable developments since the beginning of the year has been the collapse of the correlation between US-JP short rates differentials and the JPY spot rate; prices have been much more driven by risk-on / risk-off moves (deleveraging leading to stronger funding currencies like the yen and euro)

Rolling Correlation Between the USD/JPY Spot Rate And US-JP 18x24 Forward Rates Differential | Sources: ϕpost, Refinitiv data


Yields Rise At The Front End, Curve Flattens: 2s5s, 5s10s, 10s30s Spreads All Modestly Tighter

In TIPS, short-term inflation breakevens were much higher, with a continued flattening of the 5s30s reflecting the Fed's strong focus on inflation expectations (at the expense of forward growth)

Number of Fed Hikes By The End Of 2022, Implied From Fed Funds Futures | Sources: ϕpost, Refinitiv data


The Fed Is Resetting Expectations, Positioning Itself For 4 Possible Hikes In 2022

Fed Funds futures and forward OIS are currently pricing in about 3.3 hikes in 2022 (up 0.5 hike this week): 3 hikes are now firmly on the table, while some market participants see the start of quantitative tightening (Fed balance sheet runoff) as a substitute for one hike

Weekly Change In US TIPS Inflation Breakevens | Sources: ϕpost, Refinitiv data


US Treasury Yield Curve Falls At The Front End, Steepens Slightly After Disappointing Macro Data

Breakeven inflation and inflation forwards were down today, while the real rates curve steepened, a reflection that the market sees slower rate hikes leading to higher forward growth / a higher terminal rate

Timing Of Rate Hikes In 2022 Implied From Fed Funds Futures | Sources: ϕpost, Refinitiv data