Thoughts on the Moody's Downgrade of the US sovereign credit rating (inspired by a tweet by Jim Bianco):
➡️ In August 2011, S&P first downgraded the US from AAA to AA+. Back then, many derivative contracts, loan agreements, investment directives, and similar documents prohibited the use of non-AAA securities. The fear was that a downgrade meant Treasuries were no longer eligible under these rules and would mean forced selling was to follow. ➡️ The 2011 downgrade left the US Split-Rated AAA (Moody's Aaa, Fitch AAA, S&P AA+). So, the US was still an AAA country and NOT in violation of these contracts. But everyone knew it was only a matter of time before the US lost its AAA status. So, in the years after 2011, those contracts were rewritten from "AAA securities" to "government securities," thereby excluding the credit rating qualification.
On May 15, the GDPNow model nowcast of real GDP growth in Q2 2025 is 2.5%
.
April PPI plunged largely due to collapse in company margins as a result of absorbing tariff increases
What does it mean for corporate margins going forward? Moreover, Fed chairman Powell told us companies would pass through tariffs. Is it going to be the case? Source: zerohedge
The price of credit default swaps on U.S. Government Debt is rising to its highest level since 2023 and one of the highest levels since 2008 🚨
Source: Barchart
In case you missed it
US Core PPI fell to 2.4%, lower than expectations 👀It is the lowest MoM print since April 2020 lockdowns Here are the PPI details 🥶🥶🥶 PPI MoM: -0.5% vs 0.2% exp. PPI YoY: 2.4% vs 2.5% exp. PPI Core YoY: 3.1% vs 3.1% exp. Source: Mike Zaccardi, CFA, CMT 🍖
During a huge risk-on advance, US High yield spreads have tightened 152 bps since April 7.
With spreads now at 309 bps above Treasuries, credit market investors are back to pricing in a very optimistic outlook with no recession and few defaults. Source: Charlie Bilello, Y Charts
🔴 The US 10-year Treasury bond yield is on the rise.
espite the fact that the economy is slowing down. Despite the fact that inflation surprised on the downside recently. So what's going on? 😨 The US Treasury market is trying to absorb a flood of issuance without its historical buyers. 👉 Foreign official demand is weak. Domestic institutional & retail demand as well. And with the Fed still engaged in Quantitative Tightening. 📢 If this continues, consequences are well known: •Wider mortgage spreads (housing stress), •Lower bond market liquidity (bid-ask gaps widen), •Pressure on long-duration tech and utility stocks (+ the end of risk assets rebound) Note that the rise of US bond yields will not necessarily translate into dollar strength - we might see a similar correlation (stocks + bonds + dollar coming down at the same time) as observed a few weeks ago. Stay tuned Source: EndGame Macro on X
*IRAN READY TO SIGN DEAL WITH CONDITIONS: NBC CITING OFFICIAL
Source image below: Skynews
