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Bond Market News
Treasury Yields Rise After Jobs Report
February 10, 2025
US Treasury yields moved higher by 4-6bp across the curve. US Nonfarm Payrolls for January came-in at 143k, below estimates of 175k. However, December’s number was revised higher to 307k from 256k. Average Hourly Earnings (AHE) YoY rose 4.1%, much higher than expectations of 3.8%. The Unemployment Rate declined to 4.0% from 4.1%. US President Donald Trump said that he will announce new 25% tariffs on all steel and aluminum imports. He added that he plans to announce reciprocal tariffs too, noting that the US would match tariff rates levied by other countries, and that this would apply to all countries.
Separately, Minneapolis Fed President Neel Kashkari said that he expects the Fed Funds rate “to be modestly lower” at end-2025 if inflation continues to cool. He added that the labor market was not as hot as it was a year or two ago. On the other hand, Fed Governor Adriana Kugler said it would be cautious and prudent for the Fed to hold rates for “some time”, given that inflation has not reached the 2% target.
US equity markets saw the S&P and Nasdaq fall by 1% and 1.4% respectively. Looking at credit markets, US IG and HY CDS spreads widened by 0.5bp and 2.8bp respectively. European equity markets were lower. The iTraxx Main and Crossover CDS spreads widened by 1bp and 5bp respectively. Asian equity markets have opened broadly mixed. In India, the RBI cut its policy repo rate by 25bp to 6.25%. Asia ex-Japan CDS spreads were wider by 0.5bp.
New Bond Issues
Ma’aden raised $1.25bn via a two-part sukuk deal. It raised $750mn via a 5Y sukuk at a yield of 5.276%, 40bp inside initial guidance of T+140bp area. It also raised $500mn via a 10Y sukuk at a yield of 5.542%, 45bp inside initial guidance of T+155bp area. The senior unsecured notes are rated Baa1/BBB+ (Moody’s/Fitch). Proceeds will be used for general corporate purposes. The 5Y note is priced ~22bp wider to the sovereign’s 4.75% 2030s (rated Aa3/A+) that currently yields 5.06%.
Rating Changes
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Bank of Cyprus Upgraded To ‘BBB-‘ On Improved Funding Profile Of The Sector; Outlook Stable
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Moody’s Ratings upgrades Eli Lilly’s rating to Aa3; outlook is stable
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Exelon Corp. And Utility Subsidiary PECO Energy Upgraded To ‘A-‘; Outlook Stable
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Altice International S.à.r.l. Downgraded To ‘CCC+’ On Weaker Prospects And Sustainability Concerns; Outlook Negative
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Moody’s Ratings downgrades Tempur Sealy’s CFR to Ba2, concluding review; outlook is stable
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Office Properties Income Trust Downgraded To ‘CC’ From ‘CCC’ On Proposed Debt Exchange Offer; Outlook Negative
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Fitch Downgrades Mozambique to ‘CCC’
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Fitch Revises Guatemala’s Outlook to Positive; Affirms Rating
Term of the Day: Phillips Curve
The Phillips Curve refers to a graph highlighting the relation between the unemployment rate and wage inflation. The graph shows a curve with an inverse relationship between the two. As the unemployment rate falls, it would imply an increase in the demand for labor thereby leading to an upward pressure on wages. This translates to increasing inflation. The Phillips curve is named after economist A.W. Phillips, who examined U.K. unemployment and wages from 1861-1957. Phillips found an inverse relationship between the level of unemployment and the rate of change in wages.
Talking Heads
On Debt Derivatives Are So Tight Even Trump’s Tariff Talk Can’t Shift Them
Gabriele Foa, Algebris Investments
“Credit remains a tight asset class with the most stretched valuations across the board… In high yield, CDS has only been at current levels three times in the last 10 years… Credit is negatively asymmetric at the moment… You can pocket carry of 3% to 4% but if there’s an accident you can easily lose 10% to 12%.” On Trump Attack on Bureaucracy Raises Concerns Over ‘Gold Standard’ Economic Data
Steve Pierson, American Statistics Association
“If we can’t agree that the data are credible, valid, objective, then that undermines civil discourse”
Paul Schroeder, Federal Statistics
“We really are the gold standard, and a lot of the statistical systems in other countries look to us to hold up that gold standard”
On Investors return to new-look Middle East, but Trump causes some concern
Charlie Robertson, FIM Partners
“The last few months have very much reshaped the region and set in play a very different dynamic in a best-case scenario”
Michael Fertik, Modelcode.ai
“With Trump in the White House, no one doubts the United States has Israel’s back in a fight”
Sabina Levy, Tel Aviv
“During 2024, I think we learned that the market is not really afraid of the war but rather the internal political conflict and tensions… reasonable to assume a negative reaction”
Magda Branet, AXA Investment
“Lebanon could be a big story in 2025 if we make progress towards a debt restructuring”
Top Gainers and Losers- 10-February-25*
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