A new cycle high for U.S. terminal rate expectation
The market has pushed its expectations for the U.S. terminal rate higher (and longer). Indeed, it now appears that it will end slightly above 5% and in July 2023 (one month later than previously expected). The resilience of the U.S. economy (driven by a strong labor market) continues to drive terminal rate expectations higher and for a longer period of time. Source: Bloomberg
The 1-Year US Treasury yield trades at its highest level since August 2007
The 1-Year US Treasury yield has moved up to 4.85%, its highest level since August 2007. A year ago it was at 0.88% and in mid-2021 it hit an all-time low of 0.04%. Sourc: Charlie Bilello
Corporate bonds yield less than the Fed funds rate for the first time in 30 years
Source: Tavi Costa, Bloomberg
The Itraxx Xover index below 400bps for the first time since April 2022!
The spread of the Markit iTraxx Xover index, which is a good indicator of investor sentiment on European high yield, fell below 400 basis points for the first time since April 2022. The index is tightening by 25 basis points today following Ms. Lagarde's reassuring comment on the growth outlook. Source: Bloomberg
Best January since 1975 for US Investment Grade bonds
U.S. investment grade (IG) bonds recorded their best January performance (+4%) since 1975! After having its worst year in 2022 (-15.8%), the IG bond market is recovering thanks to the slowing of the Federal Reserve's monetary policy tightening and a better than expected economic outlook. Source: Bloomberg
Hedge Funds Boost #Treasury Shorts to Record on Doubts Over Rally
Source: Bloomberg
End of the tightening cycle for the Bank of Canada?
The Bank of Canada (BoC) raised its policy rate by 25bps to 4.5%, its highest level since 2008. Surprisingly, the central bank and its governor Tiff Macklem stated that the policy rate will be held at its current level unless economic data (#inflation) surprises on the upside. Source: Bloomberg.
Time for emerging market central banks to pivot?
As the Citi Inflation Surprise Index for emerging markets (EM) turned negative for the first time since July 2020, the bond market appears to be hoping for a pivot from EM central banks (CBs). The end of policy tightening in EM is already visible, as the pace and magnitude of rate hikes by EM CBs has begun to slow. Source: Topdown charts.
