Fixed Income Markets: The Week Ahead
Senior Fixed Income Strategist
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.
- Germany: industrial production
- China: trade, foreign reserves
- Euro-area: GDP, employment
- Bank of Canada: overnight rate target
- France: industrial confidence
- China: PPI, CPI
- ECB rate decision
- US: initial jobless claims, PPI, wholesale inventories
- France: industrial production
- Italy: industrial production
- 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
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.