Ford's Rise to Investment Grade Sparks Historic Shift in Junk Bond Market!
Ford's recent credit rating upgrade to Investment Grade status triggered a remarkable $46.8 billion exit from junk bond indexes, marking the most significant reduction in the global junk bond benchmark since 2005. This makes Ford the largest "rising star" in history. It underscores a transformation in corporate priorities, with a heightened focus on financial resilience amidst economic uncertainties. The trend of "fallen angels" descending into junk status has notably decelerated, and analysts anticipate more companies achieving investment grade status in the coming years. Source: Bloomberg #Finance #InvestmentGrade #JunkBonds 📉📊📈
The sudden deterioration of US economic surprises is among the factors behind the recent decline in long duration bonds
Source: Bloomberg, Nomura, TME
Markets are now betting on big rate cuts next year
This chart shows that money markets have raised policy-easing wagers since the middle of October: by September 2024, the FED should have cut by 70 basis points, the ECB by 65 basis points and the BoE by 40 basis points. (pricing is derived from swap rates tied to policy-meeting dates) Source: Bloomberg
The Fed is now expected to start cutting rates in May 2024
Here's how bonds have performed during prior rate-cutting cycles... Source: Charlie Bilello
The crowd is piling into TLT (iShares US Treasuries 20y+ ETF) calls
Friday was the largest TLT call volume ever. Source: TME, GS
How low can the US 10-year bond yield go?
The US 10 year is breaking well below the short term trend line, hitting the 50 day right here. There is a small support here, but the bigger support is down around 4.3%. Note that the 200 day remains way lower, down around 3.95%. Source: TME
The 10-year note yield is now down ~35 basis points in just 5 days
This is the biggest pullback in treasury yields since the October 6th high. Let's keep in mind that it is not only due to a shift in Fed expectations, but rather a shift in US Treasury borrowing. As the US Treasury ramps up issuances of short-term debt, long-dated bonds are falling. However, higher for longer Fed policy seems to be setting a floor on this pullback. Source: The Kobeissi Letter
The negative bonds world is gone, with also a Japanese bond maturing in 24 trading at 0% yesterday
Source: From Macro to Micro
