Gaël Fichan

Head Fixed Income & Senior Portfolio Manager

What happened last week?

Central banks: In the U.S., Fed Chairman Powell made hawkish remarks to Congress and the House Financial Services Committee. He deliberately opened the door to a higher terminal rate and a 50 bp increase at the March FOMC meeting! But that was before the Silicon Valley Bank (SVB) story. The market is now expecting less than a rate hike (25 bps), while investment banks (Goldman Sachs, Natwest) are starting to bet on no hike from the Federal Reserve. On Tuesday, the U.S. Consumer Price Index (CPI) is expected to determine whether to not raise rates, to raise rates by 25 bp, or to raise rates by 50 bp. In Europe, the ECB will release its latest rate decisions. A 50 bp increase is expected, unless the SVB story changes the minds of ECB members.

Rates: The Silicon Valley Bank story put the brakes on rising interest rates.  U.S. Treasuries had their second best week of the year at +1.7%. Over the course of the week, the downward movement in yields (-30 bps) was fairly similar at both ends of the curve. The 2-year U.S. Treasury yield is on track for one of its biggest declines. At the time of writing, it has lost nearly 100 bps since its peak on Wednesday. Interest rate volatility (the MOVE index) climbed to 140 bp by the end of the week, not far from its all-time high. The contagion also reached the European Treasury market, which gained 1.7% last week. For now, peripheral rates are holding up: the difference between Italian and German 10-year yields remained stable (181bp) over the week.

Credit: U.S. Investment Grade (IG) corporate bonds had a positive week thanks to the strong performance of U.S. Treasuries. It is worth noting that IG credit spreads had their widest weekly widening since March 2020! High yield (HY) bonds fared even worse, with a negative total return of nearly 0.9% on the week. HY credit spreads widened by more than 50 bp to 450 bp, a level not seen since the beginning of the year. In Europe, the credit market was quieter with a 0.9% gain for European investment grade bonds without significant spread widening (+3bp) while high yield bonds performance was flat (-0.03%). Note that the difference between the Itraxx Xover and the CDX HY has now reached over 70bp, a level not seen since March 2020.

Emerging market: Emerging market corporate bonds held up well last week (+0.5%), thanks to contained credit spread widening. Note that investors withdrew money from Emerging market fixed income funds for the 5th week in a row.

Our view on fixed income (March):


The front end offers a decent carry and low-rate sensitivity, while the historical level of yield curve inversion argues for staying away from the long end. Recent positive economic surprises in the US, analysis and recent deterioration in liquidity could also argue for further upward pressure on long-term yields.



Despite the recent tightening of spreads, the risk/reward remains attractive due to the high level of carry and lower rate volatilityexpectations. While we were already positive on the front end of the credit yield curve, we are moving to longer investments in the 5-10 year segments.  


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 contrarian view: 
subordinated debt!

One of our favorite fixed income segments, offering attractive valuation (in relative terms) despite the recent rally. The sector continues to benefit from strong capital position, low non-performing loan ratios and balance sheets that remains well provisioned.

The Chart of the week:

Largest weekly widening of US investment grade credit spreads since March 2020!


Source: Bloomberg

Despite a positive weekly total return for the Bloomberg U.S. Investment Grade Bond Index, its credit spread widened significantly (+16 bps). The last time the index widened this much was in March 2020, in the midst of the Covid pandemic On the verge of a new global crisis?



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