Fixed Income Markets: The Week Ahead
Senior Fixed Income Strategist
Summary: This week take time to watch the primary debt market as more and more low-BBB bonds are issued and spreads tighten. Junk is becoming more and more expensive, while risk continues to be high. In Europe, watch for any news concerning a review of the PEPP program which could trigger volatility in European sovereigns.
It is going to be a light week in terms of central banks’ meetings and government bond auctions.
We believe that the primary bond market will take the spotlight this week as bond issuance pipeline continues to be strong. Last week we saw $42b of new US high-Grade bond issuance, and the vast majority of new bonds have been tightening in the secondary market. Investors' demand continues to be high, and this week we are expecting around $35b of investment-grade notes to be priced. Supply remains skewed towards low-BBB rated bonds, which can suffer from rating downgrades as the risk of a second wave of coronavirus escalates.
Within the junk world, we have also have witnessed to lower-rated CCC bonds to tightened considerably compared to BB and B. This should be a red flag for investors as risk is becoming increasingly more expensive.
We believe that a story published by the Financial Times concerning a possible review of the PEPP’s framework is crucial for fixed income investors looking at European government bonds. Sovereigns from the periphery may suffer if the framework is revised, and future purchases of peripherals need to be limited. However, suppose other asset purchase programs are given the flexibility to invest in the periphery. In that case, we might even see Portuguese and Spanish sovereign yields falling even closer to zero (Yikes!)
- Sweden: Riksbank interest rate decision
- United States, European Union and the United Kingdom: Markit manufacturing, services and composite PMI
- Spain: GDP readings
- United States: Powell, Mnuchin Testify Before Senate Banking Committee
- United States: Initial jobless claims
- United States: to sell 50bn 7-year notes
- Italy: To sell bonds
- Italy: Consumer and manufacturing confidence index
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.