What happened last week?

Central banks

Last week, the Bank of England (BOE) raised interest rates by 25 basis points to 4.5% and indicated that more rate hikes are likely, in line with market expectations. The market currently anticipates another hike in June with a probability of over 80%, and there is still a probability of more than 50% for another hike in August. This would bring the BOE's terminal rate to 5%, which is the current level of the Fed Funds rate. In the United States, as the debt ceiling deadline approaches, all attention is focused on this matter, and the market does not foresee a rate hike at the upcoming Federal Open Market Committee (FOMC) meeting. While Fed members have left the door open for another hike in June, the overall trend suggests a pause and no rate cuts in 2023, as indicated by the recent comment from Fed member Bostic. In Europe, although the market is still expecting two more rate hikes in June and July, some European Central Bank (ECB) officials have hinted at the possibility of another rate hike in September, which would bring the ECB's terminal rate to 4%.



In the U.S., Treasury yields increased slightly during the week, as progress in the U.S. Consumer Price Index (CPI) and worsening initial claims were not enough to offset the highest level (3.2%) in the University of Michigan's long-term inflation survey since 2011. The 10-year U.S. Treasury yield finished the week up by 2 basis points at 3.47%, while the 2-year yield rose by 8 basis points to 3.99%. It's worth noting that the MOVE index, which measures volatility in interest rates, reached a one-month low of 120.5. In Europe, government bonds ended the week with a positive performance, with core rates returning +0.1%, while peripheral rates remained stable. The front-end of the German yield curve underperformed, as the 2-year yield increased by 2 basis points, while the 10-year yield decreased by 2 basis points to 2.27%. Surprisingly, rates in the UK remained stable despite the monetary policy decision announced by the Bank of England on Thursday. The British 10-year yield concluded the week at 3.79%, and the 2-year yield at 3.80%. It's worth noting that the difference between the 2-year and 30-year yields was less than 5 basis points.


The deterioration in US credit continued last week, with investment-grade (IG) bonds experiencing a 0.2% decline, while high-yield (HY) bonds lost 0.1%. However, credit spreads remained relatively stable in cash bonds, ending the week at 145 basis points for IG and 471 basis points for HY. In the synthetic market (CDS market), there was a slightly weaker sentiment, with CDX HY spreads increasing by 5 basis points to 497 basis points. In Europe, the week was more positive for corporate bonds, benefiting from the positive performance of European rates. High-yield corporate bonds outperformed investment-grade corporate bonds, with both posting positive returns of 0.3% and 0.1%, respectively. It's worth noting that certain segments in European high yield are starting to trade at tighter levels, as the B-rated segment is at its tightest level compared to the BB-rated segment since 2017. The AT1 (Additional Tier 1) market also saw positive performance, with the iBoxx Europe AT1 index gaining 0.2% over the week.


Emerging market

Emerging market corporate bonds fell 0.2% last week, as did U.S. Treasuries. In local currency terms, emerging market bonds retraced half of their earlier gains for the month, primarily due to the strengthening of the U.S. dollar. Chinese real estate bonds faced ongoing challenges and recorded another drop of 6% last week. However, the People's Bank of China (PBOC) maintained the 1-year MLF (Medium-Term Lending Facility) rate unchanged. In Turkey, volatility persisted as the initial results of the presidential election suggested a run-off in two weeks' time. Meanwhile, Chile's central bank decided to keep its key rate unchanged at 11.25% on Friday, as expected. On the other hand, Argentina raised its key rate by 600 basis points to 97% as inflation accelerated to 109%.

Our view on fixed income (May)

We favor the front end and intermediate part of the yield curve, as they offer favorable carry and benefit from improving rate fundamentals. However, caution is advised when considering the long end, given the historical level of yield curve inversion. we are upgrading our preference from unattractive to cautious on EUR core, CHF, and GBP yield curves, considering that the tightening of monetary policies is nearing its end.


Investment Grade

We favor from 0 to 10 years segments due to the steepness of the credit spread curve which fully offset the inverted U.S. Treasury yield curve. Absolute yields are still offering attractive long term entry point. Focus on high quality corporate bonds that have proven their robustness even if money market funds compete the entire credit spectrum.

High Yield


High yield bonds could come under pressure in this very uncertain environment. Recession fears, expectations of higher default rates and one of the most aggressive monetary policies are expected to weigh on this segment. The current valuation of U.S. high yield spreads implies modest default rates and the absence of inflation slippage, or a near-term recession.



Emerging market bonds have rallied impressively, outperforming investment grade US corporate bonds by more than 5% over the past six months. But rising idiosyncratic risks and the tight premium to investment grade bonds make us tactically cautious.

The Chart of the week

Record inversion in U.S. Treasury Bill yield curve since 2008!


Source: Bloomberg

The gap between the 1-month and 3-month U.S. Treasury Bill yields is currently at its most inverted level since 2008. 📈 The recent increase in the 1-month Treasury yield is driven by concerns surrounding the approaching debt ceiling deadline expected in June 2023. However, market sentiment remains cautiously optimistic, as evidenced by the relatively stable 3-month Treasury yield. This stability indicates expectations of a timely resolution to the debt ceiling issue over the summer, without any 'debt ceiling premium'.


This marketing document has been issued by Bank Syz Ltd. It is not intended for distribution to, publication, provision or use by individuals or legal entities that are citizens of or reside in a state, country or jurisdiction in which applicable laws and regulations prohibit its distribution, publication, provision or use. It is not directed to any person or entity to whom it would be illegal to send such marketing material. This document is intended for informational purposes only and should not be construed as an offer, solicitation or recommendation for the subscription, purchase, sale or safekeeping of any security or financial instrument or for the engagement in any other transaction, as the provision of any investment advice or service, or as a contractual document. Nothing in this document constitutes an investment, legal, tax or accounting advice or a representation that any investment or strategy is suitable or appropriate for an investor's particular and individual circumstances, nor does it constitute a personalized investment advice for any investor. This document reflects the information, opinions and comments of Bank Syz Ltd. as of the date of its publication, which are subject to change without notice. The opinions and comments of the authors in this document reflect their current views and may not coincide with those of other Syz Group entities or third parties, which may have reached different conclusions. The market valuations, terms and calculations contained herein are estimates only. The information provided comes from sources deemed reliable, but Bank Syz Ltd. does not guarantee its completeness, accuracy, reliability and actuality. Past performance gives no indication of nor guarantees current or future results. Bank Syz Ltd. accepts no liability for any loss arising from the use of this document.

Read More

Straight from the Desk

Syz the moment

Live feeds, charts, breaking stories, all day long.

Thinking out loud

Sign up for our weekly email highlighting the most popular posts.

Follow us

Thinking out loud

Investing with intelligence

Our latest research, commentary and market outlooks