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Bond Market Insights - Thu 02 Feb 2023

FOMC played out largely as expected with the Fed hiking rates by 25bps in a unanimous vote. During the press conference however, Powell deferred when asked about easing financial conditions and indicated "a couple more" hikes likely, adding we are in the early phases of disinflation (outside of non-housing services).

5yrs US Treasuries led the market higher, 5yr yields sliding back below 3.50% while 2yr yields were back below 4.10%. Short term Eurodollar futures spiked with Greens (2025 expiry) trading up 18 ticks. SFRM3/Z3, the expected change between June 23 and Dec 23, slid back below -55bps as the market ignored Powell’s comments that rate cuts won’t be appropriate this year.

This morning the US treasury market is consolidating with not much client activity as the attention switches from the Fed to Payrolls in the US. We also have rate decisions from both the Bank of England and the ECB

Today Asia IG is fairly buoyant, with Asia Ex Japan Itraxx Markit CDS index 3 tighter and bonds trying to follow.

News that Adani pulled its stock offering has sent bonds back into a tailspin. ADSEZ are down 10 points, ADANEM down 8pts. As a knee-jerk reaction ADSEZ 24, which were quoted at 90.50/92.50 at yesterday’s Asia close, got as low as 72/74 and is now back to above 80.

The combined market value of the Adani business empire has shrunk by about $92bn, nearly 40% according to data from Bloomberg


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