US Treasuries Rally Driven by Weak PCE Data

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September 30, 2024

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US Treasuries rallied by about 4-6bp across the curve on Friday driven by weak PCE figures for August. The annualized PCE Price Index came in at 2.2%, lower than the expected 2.3% and the previous month’s figure of 2.5%. The annualized Core PCE Price Index came in-line with estimates of 2.7%, vs. 2.6% in the previous month. US IG and HY CDS widened by 0.3bp and 23.4bp, respectively. US equity markets ended lower with S&P and Nasdaq down by 0.1% and 0.4%, respectively.

European equities, on the other hand, ended higher. Looking at Europe’s CDS spreads, the iTraxx Main and Crossover spreads tightened by 0.2bp and 0.8bp, respectively. In Japan, former Defence Minister Shigeru Ishiba was elected as the nation’s next Prime Minister and will step into his new role tomorrow. Ishiba is generally known for holding a rather hawkish stance on the BoJ’s interest rate decisions. Although he has not explicitly expressed this stance since his victory, there was a notable selloff in the NIKKEI index, which opened more than 4% lower earlier this morning. Meanwhile, the Hang Seng and CSI indices have continued to rally. Asia ex-Japan CDS spreads also tightened by 0.2bp.

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Term of the Day

Convertible Bonds

As the name suggests, convertible bonds are debt instruments issued by a company where the bonds can be converted into equity shares of the company by the bondholders at a particular ratio and at particular points in time. Thus, it is a hybrid security as it has characteristics of both debt and equity. Convertibles generally carry a lower coupons and sometimes tax advantages for the issuer.

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