Macro Risk Aversion Leads To Modest Rebound Across The Rates Complex: Yields Down, Steeper Curve

Although the forward curve inversion is not a great development, the market seems to have some confidence that short-term rate hikes will allow inflation to drop back, with a high level of (negative) correlation between 5Y Treasury yields and 2Y forward 2Y inflation swaps

US 5Y Treasury Yields vs 2Y Inflation Swap 2Y Forward (inverted vertical scales for 5Y Treasury yields and the correlation) | Source: Refinitiv


US IG Cash Spreads Widen Slightly Despite Rebound In Rates, As Risk Sentiment Around Credit Remains Very Prudent

With the recent rates volatility, high yield issuance has slowed to a crawl, but we are seeing a resurgence of IG deals this week, with JP Morgan, Citi, Morgan Stanley, PG&E among the largest issuers today

Large Net Short Positioning In CDS Indices | Source: Credit Suisse


Front-End Yields Dip As Fed Minutes Dovish Compared To Expectations, No Discussion Of 50bp Hike in March

The US dollar was broadly lower today against all major currencies, with volatility falling and high-beta risk-on currencies up significantly (Aussie Dollar up 0.74% and Kiwi Dollar up 0.83%)

CitiFX Long Term Macro Risk Index | Sources: ϕpost, Refinitiv data


Risk-Off Mood Brings On Sizeable Compression In HY Credit Spreads, With OAS On Cash BBs Down 7bp

US$ IG issuance was back today, with a few large deals coming to market including Bristol-Myers Squibb ($6bn in 4 tranches) and Canadian energy company Enbridge ($1.5bn in 3 tranches)

ICE BofAML US Corporate Single-Bs & CCCs OAS | Sources: ϕpost, Refinitiv data


US Front-End Yields Drop, Curve Steepens On Positive Risk Sentiment, Despite Hotter Than Expected PPI Data

Russia's sovereign CDS spread narrowed by 29 basis points and the Rouble was up 1.6% today, as tension in Ukraine seemed to ease with the end of war games in Belarus and pullback of some troops

Sovereign 5Y USD CDS Spreads for Indonesia, Mexico and Russia | Sources: ϕpost, Refinitiv data


US Corporate Cash Spreads Widen, Yields Rise; Rates Volatility Keeps Issuance At Minimal Levels

With earnings season winding down, companies are reporting strong results, but less so than in Q2/Q3 2021, with the tech and healthcare sectors having the largest numbers of positive surprises

Share of companies beating earnings estimates | Source: Credit Suisse


St. Louis Fed Bullard Spooks Markets Again, Brings Rates Volatility To Levels Not Seen Since March 2020

Over the past month, the market has come to expect 3 more hikes by the end of 2023, while the terminal rate in 5 years rose by less than one hike, with rates now pricing in almost 2/3 chance of a Fed cut in 2024 (reversal of policy mistake)

US Rates Volatility | Sources: ϕpost, Refinitiv data


USD BBs Keep Underperforming High Yield Universe, As Spreads Widen Significantly To End Week

Tremendous rates volatility brought low volumes of bond issuance this week (IFR Markets data): $15.6bn in 25 Tranches for IG (2022 YTD volume $184.5bn vs 2021 YTD $206.8bn) and $2.75bn in 6 Tranches for HY (2022 YTD volume $30.7bn vs 2021 YTD US$73.7bn)

1-Week Change in US Corporate Cash OAS | Sources: ϕpost, Refinitiv data


Tough Week For US Equities Ends In Red, Led Down By Technology And Communication Services

The US was an outlier, as most major markets saw positive performance this week, with Australia up 3%, the UK, Canada, and Hong Kong all up over 2%

YTD Total Returns By Country | Sources: ϕpost, FactSet data

Cross Asset

Macro Markets Saw Heightened Volatility, With Both The US Dollar And Commodities Rising This Week

All GSCI sub-indices rose this week, led by agriculture and precious metals; Chinese markets were open again and saw big gains after the new year holiday, most notably iron ore, thermal coal, and copper

US Dollar Index Intraday This Week | Source: Refinitiv


Wild Week In US Rates, With The Market Now Firmly Pricing In A Fed Policy Error

The moves in rates were led by breakevens, with inflation expectations revised markedly upward throughout the curve, while real yields were down modestly for the week except at the very long end

Inversion of the 1-Year Forward Starting Swap 2s10s Spread | Source: Refinitiv


Rough Day For US$ Credit, With Much Higher Yields And Wider Synthetic Spreads

With rates volatility through the roof after hot CPI print, bond issuers mostly sat on the sidelines today, with the only sizeable deal courtesy of Norwegian Cruise Line ($2bn in 3 tranches, including a $435m convertible)

Option-Adjusted Spread On Norwegian Cruise Line 3/2026 Bond (USG6436QAL08) | Source: Refinitiv