EM Middle East Sovereign Bonds Impacted by the Israeli-Palestinian Conflict
Since the commencement of the Israel-Palestine conflict, the 5-year CDS (Credit Default Swap) for Middle East sovereign bonds has experienced a significant surge. 📈 Notably, the market's response doesn't reflect heightened concern. This is evident as US equities have continued to climb since the conflict's onset, while interest rates have surged back to previous highs. 📈📊 Thus far, the impact has primarily reverberated in the commodities market, with fluctuations affecting oil and gold prices. Additionally, the Middle East sovereign countries in the EM (Emerging Markets) segment have also felt the repercussions. 🛢️💰 Is the market right to be this complacent in the face of ongoing geopolitical tensions?
Ownership breakdown of the US Treasury market ($26 trillion)
Source: Goldman Sachs, TME
Big opportunities ahead for fixed income investors?
The past three years' pain in bonds could indeed be setting the stage for outsized gains ahead. To put the decline into perspective, long-term government bonds, with maturities greater than 20 years, have dropped 50% from their 2020 peak, a drawdown that is comparable to the 56% decline in stocks during the height of the Global Financial Crisis in 2008 Source: Edward Jones
9% of bonds are set to mature in the next 2 years → The highest level since the Financial Crisis
High interest rates will make refinancing more difficult Source: Game of Trades
stocks vs bonds
Source: Brian Feroldi
The gap between HYG (US High Yield) and the SPX (S&P 500) is getting wider and wider...
Source: TME
The Treasury Yield Curve has been steepening (i.e. uninverting) for 5 straight weeks, the longest streak in more than 25 years
Source: DB, Barchart
US 10-year Yield pullback from last week peak
US 10-year Yield pullback sharply from last week peak. After the Non-Farm Payrolls report on Friday, the US 10-year Govt Yield came close to hitting 4.9%. As of today, that Yield is down below 4.6%.
