Monthly Fixed Income Chart Pack

Bonds
Althea Spinozzi

Fixed Income Strategist

Summary:  Saxo Bank is launching a monthly chart pack for the fixed income market. Our goal is to provide better visual insight over critical topics within the bond market. Enjoy!


US Treasuries

10-year yields are still trading in a short term uptrend. If they break their upper falling trend line (red) they will find resistance at 2%.

28_04_2021_AS13
Source: Bloomberg and Saxo Group.

10-year yields have been consolidating in the past few weeks, but if bullish momentum resumes, and break above 1.60% they could resume their rise towards 2%.

28_04_2021_AS14
Source: Bloomberg and Saxo Group.

10 year Treasury Futures is likely find strong resistance at 133.22  (around 1.40% in yield), making a downward trend to 130 more probable.

28_04_2021_AS1jpg
Source: Saxo Group.

Nominal yields are still lagging inflation expectations.

28_04_2021_AS3
Source: Bloomberg and Saxo Group.

TLT ETF (iShares 20+ Year Treasury Bond ETF) continues to suffer outflows, strengthening our expectations of higher US Treasury yields.

28_04_2021_AS4
Source: Bloomberg Barclays Indexes and Saxo Group.

US Corporate bonds

Lower rated corporate bonds within the investment grade and junk bond space are paying the tightest spread in nearly 15 years. CCC corporate bond spreads are about to fall to levels previously seen before the global financial crisis.

28_04_2021_AS5
Source: Bloomberg Barclays Indexes and Saxo Group.

Zombies are everywhere: US Corporate risk is at the highest level in twenty years, but investors are not compensated. Average Net-debt-to-Ebitda of the S&P 500 is 2.2x, CCC US Corporate bonds offer 6.4% in YTW.

28_04_2021_AS6
Source: Bloomberg Barclays Indexes and Saxo Group.

Emerging markets USD sovereign bonds

On average, Emerging markets pay a higher YTW compared to US junk bonds (4.4% versus 4.1%). Yet, their average duration is 8.5 years, more than double than the average duration in the junk bond space.

28_04_2021_AS7
Source: Bloomberg Barclays Indexes and Saxo Group.

EM USD sovereign bond OAS over US Treasury is trading in the lower bound of its horizontal trending channel. However, the countries’ debt-to-GDP ratio continues to rise.

28_04_2021_AS8
Source: Bloomberg Barclays Indexes and Saxo Group.

European sovereign bonds

If Ten-year Bund yields break above -0.20%, they can quickly rise to 0.15%. If they break above this support level they will find strong resistance at 0% next.

28_04_2021_AS9
Source: Bloomberg and Saxo Group.

Once hedged against the euro, 10-year US Treasuries pay a yield similar to the one of 10-year Greek government debt.

28_04_2021_AS10
Source: Bloomberg and Saxo Group.

Bund futures are not poised to break out bullish just yet. If they break out to the upside there is room up to 172.65. After the short-term rebound they look poised to continue lower to find resistance at 169.

28_04_2021_AS2jpg
Source: Saxo Group.

European corporate Bond space

Lower rated corporate bonds within the investment grade and junk bond space are paying the tightest spread in nearly 15 years.

28_04_2021_AS11
Source: Bloomberg Barclays Indexes and Saxo Group.

Zombies are everywhere: European Corporate risk is at the highest level in twenty years, but investors are not compensated for such risk. Average Net-debt-to-Ebitda of the STOXX 600 (excluding financials) is 2.45x, at the same time investors are paid the lowest YTW in history.

28_04_2021_AS12
Source: Bloomberg Barclays Indexes and Saxo Group.

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