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Bond Market Insights - Tues, 02 May 2023

In prospect, a week of earnings and two crucial central bank decisions. On Tuesday there are two important macro catalysts; the Eurozone CPI for April and the US JOLTs report which will act as a springboard into the Fed on Wednesday and ECB on Thursday.

US manufacturing ISM saw improved demand dynamics in April. Prices Paid rose slightly m/m to the highest since last July but were considered to be muted by the market. The main headwind of last week seems to have been resolved, as the black hole of JP Morgan absorbed First Republic.

First Republic was seized by the FDIC and all the deposits, $92bn, and all the assets, including $173bn of loans and $30bn of securities, were assigned to JP Morgan. Jamie Dimon said “this acquisition modestly benefits our company overall, it is accretive to shareholders, it helps further advance our wealth strategy, and it is complementary to our existing franchise”

It is expected to generate more than $500mm of incremental net income per annum,. JPMorgan says it will remain well-capitalized, with a CET1 ratio in line with its Q1 24 target of 13.5%.

US Treasuries were sold both in anticipation of FOMC and due to reduced anxiety over the regional banking issue resolution. US IG issuance was over $22bn in one of the busiest sessions of 2023. The main issues included a $8.5bn raise for Meta Platform in 5 tranches ranging from 5yr to 30yr, following the recent rally in its stock. Comcast printed $5bn in 4 tranches and Hershey added icing to the cake with a $750mm deal.

Front-end yields jumped and, after initial bear flattening the curve bear steepened as the long-end was pressured the corporate deals were priced. A rate cut is almost fully priced in this week, as are over 50bps of rate cuts from Jul through to December.

The other spectre haunting the market is the debt ceiling debate. Treasury Secretary Yellen warned Congress that the Treasury will run out of cash by June 1st, as Republicans and Joe Biden continue to clash.

The history of JP Morgan Chase is like the Book of Genesis in reverse. It is a product of over 1200 mergers and acquisitions in the past two centuries, starting as the water supply company Manhattan Co which kicked things off in 1799. In more recent (i.e. during my career) prior to the merger of JP Morgan and Chase Manhattan Bank: In 1991 Chemical Bank had merged with Manufacturers Trust, fondly known as Manny Hanny in London, to form Chemical Banking Corporation. 5 years later Chemical was merged with Chase to form the largest financial institution in the US. Chase then bought JP Morgan in 2000. The story continued with, amongst others, the acquisition of Bank One Corp in 2004, Bear Stearns and Washington Mutual in 2008, Cazenove in 2010 and the spree continued with notable landmarks such as WePay in 2017, InstaMed in 2019 and robo-advisor Nutmeg in 2021.

Criticism of the regulator abounds for its inability to handle Silicon Valley, Sovereign and First Republic. How are they going to be able to cope with this colossus? A colossus which in March 2022 was reported to have had a derivatives exposure of over $60.26 trillion according to an OCC report (

A couple of titbits from LATAM: Argentina’s Ministry of Economy successfully rolled over almost AR$1 trillion ($4.5 billion) of local currency debentures, the average duration of the bonds being extended to 9.2 months. In Bahamas Prime Minister Philip Davis defended his decision to access $232 million in special drawing rights (SDRs) from the International Monetary Fund (IMF) to manage foreign debt obligations. The funds were initially earmarked for reserve management.


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