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Bond Market Insights - Wed, 17 Jan 2024

US equities were weaker Tuesday, S&P down 0.5%, US10yr yields up 12bps to 4.06%, 2yrs up 9bps to 4.23% after comments from Fed's Waller lean hawkish (more below). Oil prices flat despite further US strikes against Houthi militants.

Fed's Waller leans hawkish: No reason to "move as quickly", or "cut as rapidly" as in previous cycles. Fed can cut "this year" if inflation doesn't rebound, but cuts should be "carefully calibrated and not rushed". "Time will tell" if recent inflation deceleration persists. Wouldn't want to starting rate cuts "without more confidence inflation sustainably close to target".

ECB officials were also singing a hawkish tune. ECB's Villeroy "Won't comment on the "season" for ECB cuts, "next move should be a cut", but also "too early to declare victory". ECB's Simkus, typically a hawk, opined that Interest rate cuts "may begin" around the summer and is "far less optimistic" than markets on rate cut timing.

US treasuries yields initially jumped as much as 14bps, following German bunds which continued to be under pressure amid elevated supply and ECB gloom. A huge miss on Empire Manufacturing for Dec (-43.7 vs -5 estimate) brought a  bid to the short end. A block buyer of US 10yr futures helped the market off its lows, 29,900 contracts which equates to $1,950,000 per basis point move. Wallers comments reversed this and 2yr yields jumped back over 4.25%, 30yr pushed above 4.30% for the first time since Dec FOMC while 20y sector struggled ahead of Weds supply. 2s10s went out at -16bps, the steepest close since the pre-Nov quarterly refunding announcement. 5s30s traded +38bps intra-day, steepest since May.

US swap spreads were under renewed pressure as IG issuance picked up. Tuesday’s issuance included a slew of Financials post the release of earning. Four tranche deals included $6.75bn from MS, a $8bn deal from WFC, and $8.5b from JPM.

Asia was also busy in New York time. From Japan, Sumitomo Mitsui Finance issued $500mm SUMIFL 5.109 01/23/29 at T5+123bps, Korea's Posco priced $500mm POHANG 4 ⅞ 01/23/27 at T3+110 and $500mm was raised for SK Battery America (Aa3), SKENER 4 ⅞ 01/23/27 at T3+100. From Singapore Airport Terminal $500mm SATSSP 4.828 01/23/29. In Asia time India was represented by Sriram Finance who priced $750mm SHFLIN 6 ⅝ 04/22/27 at 6.625%. Today another Korean is in the market. In Asia time India was represented by Woori Bank (A1/A+) is looking to bring a 2- tranche deal with initial price talk at T+110 for a 3yr and T+120 for a 5yr.


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