Syz the moment

Chinese real estate bonds have turned negative since the beginning of the year, erasing its big rally earlier this year. Investor sentiment has been dampened since the collapse of one of the only offshore 2023 new issues (Wanda Group / -30pts), doubts about the ability of SOEs to meet their obligations (Sino-Ocean / -46pts) and as restructuring plans seem to be a very long way to return on investment. Yet the (modest) recovery appears to be taking hold, with new home prices and home sales rising for the second consecutive month in March and the sector growing yoy in the Q12023, after six quarters of contraction. Source: Bloomberg

BofA's traditional monthly survey of global fund managers has been released and shows that investors are the most overweight bonds over stocks since March 2009! Investors are also the most record longs in Investment Grade vs. High Yield since inception (2015). Source: Bank of America

Since the surprise OPEC+ production cut, oil prices have gained over 7%. At first glance, this could be seen as a positive for U.S. high yield, as energy is a large component of the index (>12%). Unfortunately, HY Energy spreads are already historically tight relative to its index and the potential for further tightening is low. Source : Bloomberg

It is very rare that the volatility of the Treasury bond market (MOVE Index) is much higher than the volatility of the equity market (VIX Index)! The current level of the MOVE index should be accompanied by a VIX above 30 at least! How long will this dichotomy last? Source : Macrobond

The difference between the 30-year and 5-year U.S. Treasury yields has risen sharply, which is another signal sent by the market regarding the FED's monetary policy (reduction by the end of the year?) and concerns about the current situation of the U.S. economy. It is interesting to note that the last time the US yield curve (30y-5y) was in negative territory before rising sharply was just before the internet crisis (2001) and the global financial crisis (2008)... More volatility ahead? Source: Bloomberg

For the first time in this rate hike cycle, the German 2-year yield is below the ECB deposit facility rate. Furthermore, the difference between the German 2-year yield and the ECB deposit facility rate is at its lowest level (-0.53%) since 2008. Another market signal of an ECB monetary policy mistake? Not sure, considering the current level of inflation in Europe. Source: Bloomberg

The MOVE index, which measures interest rate volatility, has reached its highest level since the Global Financial Crisis. Tensions are extreme in the bond market between the stress in the US financial system triggered by the collapse of the Sillicon Valley bank and inflation that remains high. Uncertainty around the next FED decision next week has rarely been so high and especially in opposite directions: hike, pause, cut, everything remains open. But how will the market react if the Federal Reserve does not raise rates when the CPI core services ex shelter index was released today at its highest level since September? Source : Bloomberg.

What a week for the Treasury market! Following the SVB story and the U.S. jobs report, the U.S. yield curve rallied sharply, with the front end leading the way. Indeed, the 2-year US Treasury yield has dropped nearly 50 bps (!) in two days. The reversal is significant => the market has now priced in an interest rate cut by year-end and is unlikely to get a 50 bps increase at the next FOMC meeting. The fear of a recession back on the agenda? Source: Bloomberg