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Bond Market Insights - Friday, 12 Apr 2024

DJIA unchanged / S&P +0.7% / CCMP +1.7% / US10YR +4bps 4.59% / CRUDE +0.6% $85.50 / GOLD +1.6% $2,373 / VIX -5.6% $14.90. ECB rates on hold, suggests possible cut at next meeting. US PPI softer than expected. JPM, Citi, Wells Fargo, State St, Blackrock all reporting earnings tonight. Eyes on regional economic releases, South Korea & Singapore rate decisions, China Trade & India Inflation data.


UST were mixed, with the front-end stabilizing after a ‘tame’ March PPI print. The long-end continued under pressure amid more CTA selling and players setting up for the 30yr auction. In keeping with the theme set by the 3yr and 10yr auctions the 30y saw weak demand, although not quite as bad as the 10yr. the auction tailed 1.1bp (4.671%) with non-dealers participation at the lowest since November. The deluge of new issuance continues next week with $13bn 20yr on Wednesday (reopening) and a $23bn 5yr TIPS on Thursday,


Fedspeak included Williams, Barkin, and Collins. Collins noted that recent data “implies that less easing of policy this year than previously thought may be warranted." Rather convoluted English but hear the message.


What’s priced in? The market sees a 50/50 chance of a cut by July, with most having ruled out June. The first full cut has been pushed back to November, with 40bps priced through the end of the year.


ECB kept rates on hold as expected. While there was no pre-commitment to a June cut, there was also no attempt to push back on current market pricing for June. DB sees the ECB starting to cut in June, grossing 125bp by the end 2024 and 200bp by mid-2025 taking rates back to a 2% neutral rate. Lagarde commented that recent indicators point to more moderation in wages and emphasized that US and Euro wide inflation have now diverged.


BoE’s Megan Greene said persistent inflation in the UK means that rate cuts are a “way off”. She added that markets were wrong to assume that BoE would cut rates earlier and by more than the US. Jonathan Haskel, a MPC hawk, said rate cuts should be a “long way off”. Market expectations were whittled to 50bps in 2024.


Asia credit remains well bid, tightening a few bps again this morning.


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