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Bond Market Insights - Fri, 31 Mar 2023

As the dust settles Fed speakers are putting their heads above the parapet again. Barkin stated "I'm comfortable" hiking now in 25bp increments, tracking things like weekly credit card spending to see if demand is beginning to settle. Collins, typically a dove said some additional tightening "will be needed", but if delivered by tighter credit conditions, that "may offset" need for more rate hikes. The market chose to ignore this and are still pricing in large amounts of easing by year end. Watch the dot plots I reckon.

Yesterday’s price action was more consolidation at the lows with narrow ranges and very light volumes: that could be a warning that the market is not confident at these levels. Today is PCE and Michigan Confidence data. The PCE release is the one to watch and could definitely set the tone for next week when the market gets the ISM's, and the all important NFP data. Todays volumes in US futures have been extraordinary low so far, at about 50% of the usual activity.

Across the pond in Germany CPI was higher than expected at 0.8% m/m, y/y now running at 7.4%, down from 8.7%. Historically German Chancellors have had a thing about rising prices. Helmut Schmidt (1974-1982) colourfully said “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman”. Nagel, President of the Bundesbank and a member of the ECB’s governing council is a keen advocate of winding down the ECB’s €5 trillion bond portfolio and is insisting that the ECB must be stubborn in its attempts to beat inflation.

In Europe AT1’s were flying, dragging up financials in their wake. ETF’s and all sorts of other participants were joining in the fray. STANLN AT1 PERP was up 4pts in the street, others were up 1pt to 3pts. There was a reversal when US came in and we were able to pick up some paper for our clients, but the market is very skittish.

There has been strong buying of better names in the China property sector over the past few sessions with Country Garden, Roadking and Wanda properties over the past few sessions. Some were up another 5 points this morning as Country Garden tells investors that it has readied funds to repay $875 million of bonds coming due in June. Perhaps it is also a relief rally following the release of Evergrande’s 201-page proposed offshore restructuring plan.


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