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US Treasury yields were marginally lower on Wednesday with no major economic data releases. The US Treasury’s $39bn 10Y auction saw a solid response with a bid-to-cover ratio of 2.58x vs. the three auction average of 2.50x and non-dealer bidding of 88.5% vs. the 82.7% average. Separately, Fed Chairman Jerome Powell indicated he is not prepared yet to say that the Fed is “sufficiently confident that it (inflation) is moving sustainably down to 2%”. Looking at equity markets, S&P and Nasdaq saw a strong rally, up by 1-1.2%. US IG spreads were 0.5bp tighter and HY CDS spreads were tighter by 3.1bp.
European equity indices ended higher too. In credit markets, the iTraxx Main and Crossover spreads were tighter by 0.9bp and 3.9bp respectively. Asian equity indices have opened higher this morning. Asia ex-Japan CDS spreads were 1.3bp wider.
Saudi Aramco raised $6bn via a three-part deal. It raised:
The senior unsecured bonds are rated A1/A+ (Moody’s/Fitch), and received orders of over $23bn, 3.8x issue size. Proceeds will be used for general corporate purposes. This was its its first dollar bond issuance in three years. Aramco first issued dollar bonds in 2019, followed by another in 2020 and dollar sukuk in 2021.
Asset Backed Securities (ABS) are securities that are collateralized or backed by a pool of assets. This pool of assets are made by a process of securitization and could be in the form of loans, credit card debt, mortgages etc. with each security backed by a fraction of the total pool of underlying assets. Thus, an investor gets interest and principal payments while also assuming the risk of the underlying assets. The underlying pool of assets are structured in different tranches with the highest priority of repayment going to the top tranche and then to the second tranche and so on.
On Will act ‘when and as’ needed, regardless of election – Fed Chairman Jerome Powell
“Our undertaking is to make decisions when and as they need to be made, based on the data.. evolving outlook and the balance of risks… It’s just not appropriate for us to get into the business of thinking about election cycles at all”
On US Data Consistent With a Soft Landing – Fed Governor, Lisa Cook
“My baseline forecast (and that of many outside observers) is that inflation will continue to move toward target over time, without much further rise in unemployment… There can be non-linearities “
On Asian Stocks Echoing US Rally as Tech Bolsters Mood
Mark Hackett at Nationwide
“Markets remain remarkably calm despite the flood of data this week, including Fed Chair Powell’s testimony, CPI/PPI reports, and the beginning of earnings season”
Anna Wong, Bloomberg Economics
“June’s CPI report looks to be another ‘very good’ report that should boost the FOMC’s confidence… should set the stage for the Fed to start cutting rates in September.”