Credit
The Selloff In Rates Takes Down US Corporate Bonds, Most Notably In Longer-Duration IG
Good start for the USD IG primary market, with several issuers on deck today, including a $2bn, 3-tranche offering from Caterpillar; the first week of the year is expected to see about $40bn in total new volume
Equities
US Equity Indices Kick Off The New Year With A Decent Uptick On Average Volumes
Under the hood, it was a mixed day with only about half of S&P 500 stocks rising, led by the energy and consumer discretionary sectors; growth and small caps overperformed the wider market
Rates
Treasury Yields Rise From The Belly Out With Higher Inflation Breakevens And Higher Real Yields
The most meaningful impact of the December FOMC has been to move forward the Fed Funds rate liftoff: Fed Funds futures now price in 100% probability of a rate hike by the end of May 2022, with a 68% chance the committee pulls the trigger at the March meeting
Credit
High Yield Spreads Tighten As Risk-On Sentiment Returns Once FOMC Out Of The Way
Very little happening this week in the primary bond market, with only a handful of US$ deals pricing, including Skillz' $300m high yield senior note (10.25% coupon, priced below par)
Equities
US Equities Get The Year-End Rally Going With Risk-Free Event Calendar Post FOMC
Huge outperformance of growth over value, as the technology and healthcare sectors led the way; energy was the only S&P 1500 sector posting a decline today
FX
Euro Rises, Japanese Yen Falls After FOMC Sets Path For Feds Funds Rate Liftoff Next Year
One-month ATM implied volatilities are falling rapidly, and risk reversals in EUR, JPY are showing a moderate skew towards a weakening of the USD, as the consensus and rates differentials favor a stronger dollar
Rates
Very Slight Steepening Of The US Yield Curve After The Fed Confirms New Hawkish Bias
It's a wrap: the last major US macro event of 2021 is behind us, with some surprises (for us) in the Fed's reaction function, as the FOMC is now single-mindedly focused on inflation
Credit
Higher Rates, Wider Spreads Take Corporate Bonds Lower Ahead Of Crucial FOMC
US equities have done better than high yield credit this year on a risk-adjusted basis, with the recent rise in front-end rates hurting HY much more than stocks
Equities
Big Drop In Technology Stocks And Another Day Of Outperformance For Value Over Growth
Decent volumes, slightly higher implied volatilities (though nothing scary), potentially opening to the door to a rally into the end of the year if the Fed proves less hawkish than the market tomorrow (which we expect)
FX
Dollar Index Up Today As Further Rise in US Short-Term Rates Widens Rates Differentials
Emerging market currencies have been weakening since the start of the week, with both the Omicron risk-off sentiment and higher US rates making EM carry less attractive
Rates
US Rates Rise On PPI Inflation Data: Lower Breakevens, Higher Real Yields, Flatter 5s30s TIPS Curve
Market implied Fed hikes rose to 2.8 at the end of 2022, with the probability of a third hike rising from 68% yesterday to 82% today (according to 1-month OIS forward rates)
Credit
Good Day For US Credit As Lower Benchmark Yields Offset Modestly Wider HY Spreads
Looking at historical HY default rates, it's hard to see them going anywhere but up: as higher Fed Funds rates tend to bring higher default rates, we're likely to see a bear flattening of the HY credit spreads curve going forward
