Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Chief Macro Strategist
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Fixed Income Markets: The Week Ahead
Althea Spinozzi
Head of Fixed Income Strategy
Summary: Heavy US Treasury notes issuance this week will provide an insight to inflation expectations.
This week’s focus is going to be in the primary US Treasury market:
- Tuesday 8th of September: US to sell $50bn 3-year notes
- Wednesday 9th of September: US to sell $35bn 10-year notes
- Thursday 10th of September: US to sell $23bn 30-year notes
We expect the 3-year notes to quote in line with current market valuations. However, we believe that the 10 and 30-year note issuances are crucial to understanding investors' expectations regarding CPI numbers, which are going to be released on Friday. If investors expect higher inflation, they will demand higher yields. Therefore, we could potentially see 5s30s steepening, while the front end of the curve could flatten slightly as risk-averse investors position themselves into shorter maturities.
Another area to look at is the investment-grade (IG) bond space. This week, dealers are looking to issue up to $50bn IG bonds. This year has seen the largest issuance in investment-grade bonds ever, with lower-rated IG corporates issuing the largest amount. We believe that this is a major credit negative signal as the system gets more and more leveraged and ratings are doomed to deteriorate. We will look to this point into detail in an article published this week.
On Thursday we have the ECB meeting where the market is expecting Lagarde to talk the euro down. The ECB might even decide to cut the main policy rate by 10bps to reinforce this point. If that were to happen, we expect the bund to reprice higher. Still, we don't believe it will be a driver for higher prices in the European corporate bond space as yields are already depressed.
Economic Calendar:
Monday 7th
- Germany: industrial production
- China: trade, foreign reserves
Tuesday 8th
- Euro-area: GDP, employment
Wednesday 9th
- Bank of Canada: overnight rate target
- France: industrial confidence
- China: PPI, CPI
Thursday 10th
- ECB rate decision
- US: initial jobless claims, PPI, wholesale inventories
- France: industrial production
- Italy: industrial production
Friday 11th
- US: consumer prices, Treasury budget statement
- EU finance ministers meet for a 2-day meeting
- UK: GDP, BOE inflations expectation survey
- Spain: industrial output
Sovereign rating updates
- S&P: Austria, Luxembourg, Malta, Norway, Portugal, Ghana, Jordan, Kenya, Ukraine
- Moody’s: Poland, Slovakia, Botswana, Mozambique
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