Is it time to increase duration in EUR bonds?
The latest European Commission survey on Eurozone selling price expectations shows a significant decline, suggesting that inflation should continue to decrease in the coming months, alleviating pressure on the ECB to tighten its monetary policy. After a possible one or two final tightening moves by the ECB in June and/or July, is it worth considering a higher allocation to European rates, particularly core bonds? Source : Bloomberg.
📈 European Investment Grade bonds ride the wave of positive momentum!
The iTraxx Main index, which monitors the 5-year credit default swaps (CDS) of IG corporate bonds, achieved a significant breakthrough by crossing the 80 bps threshold for the first time since the banking stress experienced in March. This development indicates a positive shift in market sentiment and improved confidence in the IG corporate sector. This achievement in the credit market raises an important question: Is the market too complacent with the current situation, or does it suggest that a soft landing has become the baseline scenario? Source: Bloomberg
Turkey 5-year CDS back to pre-election levels!
Market sentiment initially turned negative as the first-round results showed an unexpected rise in Erdogan's prospects for securing another presidential term. However, in a remarkable turnaround, Turkey's 5-year CDS has already returned to pre-election levels just days after Erdogan's re-election. The appointment of Mehmet Simsek as Minister of Treasury and Finance signals a positive shift towards a more conventional economic approach, bolstering market confidence post-election. Could this indicate a forthcoming adoption of a more conventional monetary policy strategy by the Turkish Central Bank? Source : Bloomberg
UK Bond Market Suffers Major Blow on Unforeseen Surge in UK CPI!
The UK bond market witnessed a substantial downturn due to an unexpected surge in Britain's core inflation rate, reaching its highest level in over three decades. This surprising release led to a sharp 25bps rise in the two-year UK Treasury yield. Consequently, market sentiment has shifted, with rate hike expectations now fully priced in for June, and projections even suggesting a potential 50bps increase. As a result, the terminal rate, anticipated for December 2023, is now hovering at almost 5.5%, a significant shift from less than 5% merely two days ago. Source: Bloomberg.
Greece’s 10-year government bond yield fell to 3.80%
The rate is down more than 110 basis points since last year’s high, taking down the spread to Italy bonds to -40bps.
Prime Minister Kyriakos Mitsotakis’s center-right New Democracy received almost 41% of the vote vs 20% for the leftist Syriza party. Mitsotakis could maybe secure a single-party government in about a month.
Will Greece be back in Investment Grade party?
Source: Bloomberg
Italy Maintains Investment Grade Status: Moody's Decision Confirmed!
In a crucial development for Italy's economic landscape, Moody's has confirmed the nation's BBB- sovereign debt rating after conducting a comprehensive review of its credit profile. This decision reinforces Italy's investment grade status, providing stability and reassurance to the market. The anticipated outcome is evident in the behavior of the spread between Italian and German 10-year yields, which has remained steady, along with remarkably low volatility in this spread over the past few weeks. Source: Bloomberg
How long can the Bank of Japan maintain its ultra-accommodating policy?
As Japan's core Consumer Price Index (CPI) reaches an impressive milestone of 4%, the nation finds itself at a pivotal juncture in its inflation landscape. This surge places Japanese inflation well above the Bank of Japan's (BoJ) target. While the BoJ's specific objective remains the maintenance of stable inflation at around 2%, the question arises: How long can the BoJ sustain its ultra-accommodative policy stance? With Japan's staggering debt-to-GDP ratio surpassing 200%, finding the right balance becomes crucial in addressing the potential challenges of runaway inflation. Source: Bloomberg
📉 Significant drop in High Yield volatility!
The recent sharp decline in European High Yield volatility highlights the market's complacency towards this fixed income segment. 📊 Examining the 30-day price volatility over the past decade, the High Yield index has reverted to 2021 levels, now standing one standard deviation below the average. 💼 Is the anticipated future recession in Europe already fully priced in on the soft side? Source : Bloomberg, RBC.
