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Bond Market Insights - Tues, 24 Oct 2023

Bill Ackman buys back shorts, the flock follows. Saying that CFTC showed that in the week ending last Tuesday the net short across the six Treasury futures contract was almost 4m contracts, way larger than the previous combined record of 2.2m in mid-2018.

10yr yields had broken above 5% for the first time since 2006 while 30yr yields traded at 5.176%. Admittedly there is a lot of geopolitical risk and the market will be prone to squeezes, as Bill proved as his tweet, or is it X, reined 30yr yields in 20bps while 10’s pulled back to 4.85%. Vanguard joined in the fray, announcing that they are bullish longer dated treasuries, citing that the economy will slow next year into a “shallow recession”.

Declining bank credit is rearing its ugly head. The current decline is one of the worst since records began in 1974, only surpassed by 2008, when the contraction reached -5%.

As regional banks have stepped back a space has been left for non-bank lenders such as asset managers, private equity and insurers, which has tempered the impact, but as this contraction becomes more extreme borrowing rates will be impacted further, impacting businesses and consumers.

Signs of stress are also creeping into the US high yield bond market, with CCC bonds repricing after a long period of complacency.. Last week investment grade widened 6bps, on average the high yield sector widened 26bps, while CCC increased 46bps.

Source Bloomberg


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