What happened last week?

Central banks: The March BLS data once again showed the robustness of the US labor market. Unless the CPI data is very bad (released tomorrow), the jobs report should confirm the Fed's decision to raise rates by only 25 bps at their May meeting. The market is currently pricing in an 80% chance of such a scenario, while Fed members Williams and Bullard focused on tempering the impact of the Fed's action on failed banks. In Europe, ECB members reiterated their commitment to raising the deposit facility rate. ECB Knot is still open to a 50 bps hike at the May meeting, which he sees as an "almost impossible" change from a rate cut, while Spanish Central Bank President De Cos still expects further hikes as "inflationary pressures continue to build." The market considers the probability of a 25 bps increase to be close to 100%.  
Rates: U.S. Treasuries performed well (+0.6%) last week, with the 10-year U.S. Treasury ending the week at 3.4%, down 7 bps. Mixed employment data (good BLS report vs. weak jobless claims) did not influence the yield curve too much as the 2-year U.S. Treasury yield fell 5 bps (and back below 4%), inverting the yield curve by only 2 bps. On the other hand, the spread between 3-month and 10-year U.S. Treasuries reached a new low at -157 bps. In Europe, government bonds started the month on a high note with a performance of +0.9%, with the German 10-year yield ending at 2.18%, down 11 bps on the week. Peripheral rates slightly underperformed core rates with a modest gain of 0.6%.

Credit: U.S. Investment Grade (IG) bonds continued to perform well, adding 40 bps to the 2023 performance (+3.9%). The rate component more than offset the slight widening of the credit spread (+3bps to 140bps). HY credit spreads widened by 10 bps to 465 bps, reflecting weak investor sentiment and activity in the HY primary market (nearly $8 billion of new issuance). In Europe, it was a similar week, with EUR IG having a strong start to the month (+0.8%) while EUR HY was up only 0.1%. European HY credit spreads widened by almost 20 bps due to the lower quality (CCC) and real estate sector (-1.2% on the week).

Emerging market: The Reserve Bank of India surprised the market by keeping its key interest rates unchanged at 6.5%, indicating that rates are already in restrictive territory. In China, the Caixin PMI Composite (54.5 vs. 54.2) confirmed the positive momentum of the Chinese recovery, while the Chinese real estate market appears to be stabilizing. Indeed, March data showed an increase in long-term loans for households, while new home sales by the country's 100 largest property developers rose by 30% yoy. Against this backdrop, emerging market indices have risen since the beginning of the month, with hard currency sovereign bonds rising 0.5% and dollar corporate bonds rising 0.7%. Credit spreads narrowed by 10 bps and 3 bps to 415 bps and 376 bps, respectively, for the EM sovereign and corporate indices.  

Our view on fixed income (April)

We favor the front end of the Treasury curve, which offers decent carry and low interest rate sensitivity. The yield curve inversion and inflation plead for staying cautious on long term bonds even if they can offer an attractive hedge against potential negative scenarios.


Investment Grade

Recent developments have increased downside risks but Investment Grade continues to offer value. The risk/reward remains attractive due to the high level of carry. 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. 

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.



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

The most inverted short-term US Treasury yield curve in history!


Source: Bloomberg

For the first time, the spread between the 3-month and 2-year U.S. Treasury yields reached -100 bps. This is a very good reflection of the dichotomy between the current path of Federal Reserve rate policy (reflected in the 3-month yield) and the market's view of the future path of rate policy (2-year yield). As a result, the market currently expects significant rate cuts from the Federal Reserve in the coming months. Who will be the first to give up?


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