US Rates Rise, With Lower Inflation Breakevens And Higher TIPS Real Yields; Volatility Close To Highest Level This Year

Today saw a decent rebound in the TIPS 5s30s spread, an indicator of forward economic growth expectations, after a big drop last week; it's not necessarily sustainable though, as the Fed might come closer to the GS view of 3 rate hikes in 2022 in its new economic projections / dot plot next week

US TIPS 5s30s Spread (%) | Source: Refinitiv


US Corporate Bonds Rose To End The Week, Mostly Helped By The Move Lower In Rates

Total volumes of issuance for US corporate bonds this week (IFR Markets data): US$400m in a single tranche for HY, US$29.0bn in 40 Tranches for IG

Leveraged Loans Did Better Than High Yield Bonds During The Recent Downturn | Source: Credit Suisse


Mixed Day For US Equities, With Declines Led By The Technology And Consumer Discretionary Sectors

Volatility weighed on issuance this week, with very little ECM activity: $2.1bn of SPAC IPOs, $1.7bn in Accelerated Book Building / Blocks, $500m of Follow-Ons, $800m of Convertibles, $157m in international deals (IFR Markets data)

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


Terrible Week For Major Commodities, With Large Losses Throughout The Complex

Crude oil and natural gas prices were mostly driven by Putin's efforts to gain acceptance for Nord Stream 2: he favored increasing OPEC+ supply further to please Washington, though the group left the meeting unadjourned with no changes to their existing agreement

Wuxi Cobalt Front-Month Futures Prices | Sources: ϕpost, Refinitiv data


Volatile Week For Currencies Ends On A Quieter Note, With The Dollar Index Edging Up On Friday

The past week has been a good example of how carry trades have a negative convexity to volatility, while funding currencies like the Japanese Yen and Swiss Franc have a positive convexity (rising the most when volatility is highest)

US Dollar Index Front-Month Future Prices | Source: Refinitiv


US Rates Drop, Mostly From The Belly Out, On Disappointing Private Payrolls (235K vs 530K Expected)

The ISM Services was very strong, which (coupled with the weak NFP) points to higher wage growth and more price increases, keeping short-term rate hikes expectations relatively unchanged

Changes In The Timing & Magnitude of Fed Hikes Priced Into 3M USD OIS Forward Rates | Sources: ϕpost, Refinitiv data


Mixed Day For US Credit, With Cash Spreads Seeing Modest Widening In IG, Tightening In HY

In the primary bond market, Daimler Trucks Finance painted the curve out to 10 years in the largest offering today, raising US$ 6bn in 8 tranches


Broad, Solid Rebound In US Equities, With 91% Of S&P 500 Constituents Closing Up

All sectors rose today, led by industrials and energy stocks; value and small-cap stocks overperformed widely growth and large caps after underperforming over the past week

12-Month Range Of Prices For S&P 500 Sub Indices | Sources: ϕpost, Refinitiv data


Not A Great Deal Of Movement For The US Dollar Index Today, With Slight Weakening In The EUR And JPY

Emerging market currencies rebounded today with the risk-on sentiment, lower sovereign credit spreads and a bounce in commodities; the notable exception was the Turkish Lira, which fell hard again, now just below the 14.00 level

Brazil, South Africa, Turkey 5Y USD CDS Spreads (basis points) | Sources: ϕpost, Refinitiv data


Big Rise In US Rates At The Front End Out To The Belly, With Further 5s10s Flattening

For the first time today, the implied yield in December 2025 eurodollar futures (ED) is lower than December 2024 ED, meaning the market sees a short and shallow hiking cycle till 2024 followed by a possible policy reversal starting in 2025

EDZ25/EDZ24 Implied Yields Spread (%) | Source: Refinitiv


Decent December Start For US Credit, With Tighter HY Cash Spreads And Lower Long-Term Rates Helping IG

After days of forced idleness, the primary corporate bond market came back to life today, with a number of large prints, led by Goldman Sachs' US$ 3.25bn offering in 3 tranches and T-Mobile's $ 3bn in 3 tranches

List of High Yield Reopening Names Most Down YTD | Source: Credit Suisse


US Stocks Opened Higher, Turned Around Midday And Fell Hard Into The Close

Some reported that an omicron case in California was the cause of the slide, but it sounds like a weak explanation at best; fund managers are more likely to be booking some gains to crystallize the solid YTD performance in US equities

S&P 500 Index (INX) Performance Intraday | Source: Refinitiv