Syz the moment

Highly rated US companies have sizable amounts of debt in need of refinancing. Blue-chip firms have an estimated $427 billion maturing in the second, third and fourth quarters of 2023, according to S&P Global. High-grade issuers are finding that windows to sell new debt close as fast as they open. And, on top of that, good days easily get crowded, leading issuers to stand down. Source: Bloomberg

Yesterday, the Fed hinted that this could be the last rate hike of this cycle, leading some to wonder if the flattening of the US Treasury yield curve is finally over. After the FOMC meeting, the difference between 10-year and 5-year Treasury yields turned positive. It should be noted that this part of the curve was the first to turn negative in March 2022. Will this new trend continue in the weeks and months to come? Source: Bloomberg

Today, Fed Governor Powell will present the conclusions of the Fed meeting, a crucial moment as the market believes it will mark the end of the Fed's rate hike cycle. Despite deteriorating macroeconomic indicators and another failure of a major US regional bank (FRB), the market believes there is a near 90% chance of a rate hike. Powell is also expected to emphasize that rates will have to remain high for an extended period of time as inflation remains high. However, there are doubts about how the Fed will take into account the recent failure of First Republic Bank and the ongoing debt ceiling situation. Note that there is no update on the US economic outlook and the dot charts.

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