Fear continues to stoke U.S. Treasuries. 10yr yields shedding another 5bps to 4.16%, the lowest level in 3 months on the back of US ISM Manufacturing PMI, which slipped to 50.3. Both new orders and employment softened.
Rate cut expectations have now shifted further into dovish territory, with the market pricing in 75bps of easing for 2025, compared to just 28 bps a month ago.
Credit markets also reflected a more cautious tone. US IG widened, driven by a combination of risk aversion and heavy supply in the primary market. Sixteen issuers priced a total of $28.2bn in new corporate bond deals, nearly half of this week’s expected issuance, with M&A-related transactions leading the way.
European bond markets faced renewed inflation concerns after February's headline CPI rose 2.4% y/y , slightly above consensus forecasts. Core inflation also edged higher to 2.6%, raising questions about how aggressively the ECB will continue to ease at the same pace. Expectations are for a 25bps cut this Thursday, then the focus will be on any signal that we get a pause in April.
Germany’s centrist parties are discussing the creation of two off-budget funds totalling €800bn, earmarked for defence and infrastructure spending. If implemented, this would represent one of the most significant fiscal expansions in Germany’s modern history, with potential long-term implications for bond issuance, yield movements, and European economic growth.
Asia IG remains under pressure, spreads widening slightly in the hope of increased bond supply. In high yield China property continues to trade better. New World Development’s NWDEVL 6.15% perpetual rallied 13 points yesterday on speculation that the company would exercise the call. NWDEVL’s other bonds were up 3-5pts on the back of this.
Emerging market bonds were relatively stable, but Mexican bonds saw some widening as investors reacted to the confirmation that 25% U.S. tariffs on Mexico and Canada will take effect..
Oil prices dropped 2.7% to below $68.50 per barrel after OPEC+ reaffirmed plans to phase out voluntary production cuts over the next 18 months. The crypto market also faced volatility, with Bitcoin reversing Sunday’s gains and dropping 8.5%, following the announcement of a new U.S. crypto reserve policy.
Looking ahead, the chaos will continue with President Trump’s Congressional address later today. U.S. ISM Services is released later today, ECB’s on Thursday, and the U.S. jobs report on Friday. Markets will be looking for confirmation that payroll growth remains steady at around 155,000, with the unemployment rate holding at 4%.
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