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Bond Market Insights

US treasury investors were busy buying dips in the short end, seeing the “dovish hike” as a sign of being near the end of cycle as a slowdown looms. 2yr yields slipped through 3.80%, a 45bp move from Wednesday’s highs. 2s10s moved 9bps to -40bps, all but a 70bp move from the highs earlier this month.

Auntie Janet attempted to walk back yesterday’s comment, headline stated “we would be prepared to take additional actions if warranted” to ensure American’s deposits are safe, fueling this move.

Elsewhere the Swiss National Bank hiked by 50bps to 1.5% as expected and signaled more to come as it resumed its inflation fight, following the CS debacle. The Old Lady (Bank of England) raised its benchmark lending rate as expected by a quarter point to 4.25% which is the highest since 2008. The vote was split 7-2, with a slightly dovish tone. Norges Bank also hiked by a quarter to 3%.

All this end of cycle celebration seems a little bit premature. In the US, despite 9 rate hikes there is little sign of dampened demand or lower asset prices. Wages are still rising, the unemployment rate is still 3.5%, service PMI is running at a 6% rate; but despite it seems that the market wants to believe that the Fed and Co. are about to go into reverse.

Asia has been a backwater this week, with eyes elsewhere. In Europe senior and sub financials traded softer as investors looked to lighten up and avoid new risk. AT1’s gave back some of the recovery, down 0.50pt as the world debates whether additional or common equity Tier 1 goes first. Tier 2 spreads widened around 20bps for Spanish and Italian financials, while UK names kept to around 15bps.

Singapore’s MAS has circulated confirmation of where Additional Tier 1 sits vs common equity, in line with the FSB’s “Key Attributes of Effective Resolution Regimes for Financial Institutions”, saying that equity holders will absorb losses BEFORE AT1 or Tier 2 holders. This applies to Singapore Bank hybrid issues. There have been many commentaries over the last two days which have been based on hearsay, so this sort of guidance is very welcome

Deutsche Pfandbriefbank AG has decided not to call its €300m Perpetual non call until 4/2023 AT1 notes. (PBBGR 5 ¾ PERP) “The decision not to refinance the AT1 Bond (ISIN: XS1808862657) has been taken after careful evaluation of various factors, including market conditions and economic costs,” according to the statement. Bond will reset to a new fixed coupon being the equivalent of 5Y Euro Mid Swaps plus 5.383% from 28 April 2023. At the current 5yr mid swap rate, the new coupon will be around 8.425%. Not the last I in this environment I'd guess


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