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Bond Market News
Treasuries Rally on Softer CPI, Mixed FOMC
June 13, 2024
US Treasuries jumped higher across the curve following the softer-than-expected inflation report and a mixed FOMC meeting outlook. The 2Y and 10Y yields were 8-9bp lower while the 5Y yield was 11bp lower. US CPI showed a 3.3% increase in May, as compared to expectations and the prior month’s print of 3.4%. The Core CPI saw a 3.4% rise vs. expectations of 3.5% and Aprils 3.6% reading.
Later in the evening, the FOMC kept the target Fed Funds Range unchanged at 5.25-5.50% as expected. The FOMC’s dot plots guided for a 25bp rate cut by end-2024, whilst Chairman Jerome Powell left the door open for more. This compares to 75bp in cuts seen in the March meeting’s dot plots. Regarding the projected rate cuts for 2025, the FOMC expects 100bp in cuts next year vs. 75bp in March’s dot plots.
On the other hand, the Fed acknowledged the easing inflation pressures whilst not committing to a solid stand on multiple rate cuts. The latest FOMC statement noted that “there has been modest further progress” vs. May’s statement that noted “a lack of further progress” towards its 2% inflation goal. Also, Powell said the inflation outlook offered by the Fed is “a fairly conservative forecast” that may not be borne out by coming data, and is subject to revision. Besides inflation, Powell said that the totality of all the data (growth, labor market, inflation and balance of risks) is the focus and that the Fed does not make “decisions about future meetings until we get there”. US equity markets rallied, with the S&P and Nasdaq up by 0.9% and 1.5% respectively. US IG and HY CDS spreads tightened by 2bp and 6bp respectively.
European equity markets also rallied. Europe’s iTraxx main CDS spreads were 2bp tighter and crossover spreads were tighter by 9.3bp. Asian equity indices have opened mixed this morning. Asia ex-Japan CDS spreads were 0.3bp tighter.
New Bond Issues
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Zhongyuan Yuzi Investment $ 3Y Sust. at 6.45% area
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Wuhan Urban Construction $ 3Y Sust. at 6.05% area
UAE-based property developer, Arada raised $400mn via a 5Y sukuk at a profit rate of 8%, 62.5bp inside initial guidance of 8.625% area. The senior unsecured notes are rated B1/BB- (Moody’s/Fitch), and received orders of over $1.45bn, 3.6x issue size.
New Bonds Pipeline
- REC Limited hires for $ Long 5Y Green bond
- Korea Gas hires for $ 3Y or 5Y bond
Rating Changes
- Moody’s Ratings upgrades Telecom Italia’s ratings to Ba3; outlook positive
- Fitch Upgrades Titan Holdings II B.V. to ‘B+’; Outlook Stable
- Guangzhou Finance Holdings Downgraded To ‘BBB’ From ‘BBB+’ On Protracted Asset Quality Pressure; Outlook Stable
- Pitney Bowes Inc. Outlook Revised To Developing From Stable On Review Of E-Commerce Business; ‘B+’ Rating Affirmed
Term of the Day
Fed Dot Plot
The Fed dot plot is a visual representation of interest rate projections of members of the Federal Open Market Committee (FOMC), which is the rate-setting body within the Fed. Each dot represents the Fed funds rate for each year that an anonymous Fed official forecasts. The dot plot was introduced in January 2012 in a bid to improve transparency about the range of views within the FOMC. There are typically 19 dots for each year, representing the median rate of each voting member on the committee.
Talking Heads
On ‘Huge’ Uncertainty Leaves 2024 Rate Path Open – ECB’s De Guindos
“The level of uncertainty is huge. When you’re in a dark room, you have to be very careful… We clearly believe that the disinflation process will continue… lot of confidence that inflation will converge in the second half of 2025 to 2%”
On Things ‘Kind of Awesome’ for Stocks – BofA’s Savita Subramanian
“Things today are actually kind of awesome… Most of the time, we get some semblance of Goldilocks. That’s the view that we’re espousing until things really start to fall off a cliff.”
On Fed Signalling One Rate Cut This Year, But Door Open to Two
Kathy Bostjancic, chief economist at Nationwide Mutual Insurance
“There’s still the possibility of two rate cuts this year, starting as soon as September, but they need the data to comply… erring on the side of conservatism”
Derek Tang, economist with LH Meyer/Monetary Policy Analytics
“Powell really leaned into the close split between the one-cut median and the two-cut mode”
Top Gainers & Losers- 13-June-24*
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