Fixed Income Markets: the week ahead

United States

The US election will be in the spotlight as we are just one week away from the result. An agreement on stimulus will most likely not be reached before the election day. Thus, the economy is running into the risk that there will not be stimulus until February 2021. If that were the case, we might see the Federal Reserve being more forceful on fiscal spending and increasing their bond purchases in order to match specific policies such as unemployment benefits. Such policies will put more pressure on US Treasuries as such stimulus will be hard to unplug in case of inflation overshooting. Therefore, even though in the short-term we might see the US Yield Curve flattening slightly amid uncertainty, in the long-term, we will continue to see a 5s30s bear steepening. The 2s10s part of the yield curve will not move much as the Federal reserve controls it.

In the corporate credit space, the market will continue to focus on primary issuance rather than corporate earnings. This week we have Alphabet, Amazon and Apple releasing third-quarter earnings reports. I expect these names to continue to trade stable, especially because uncertainty produced by the US election will support quality assets.

Surprisingly, primary junk bond issuance continues to price new deals, notwithstanding volatility. Last week we saw $6bn junk bonds pricing in the primary market with orders more than three times the deal size. As companies fear a rise in borrowing costs, we might see more junk bond issuance until year-end.

Economic Calendar this week:

Monday, October 26th

• Australia: Trade Balance;
• Japan: Leading Economic Index;
• Germany: IFO expectations, IFO Business Climate, IFO Current Assessment;
• United States: Chicago Fed National Activity Index, New Homes Sales, Dallas Fed Manufacturing Business Index. Auctions: 3-Month and 6-Month Bills;
• New Zealand: Trade Balance.

Tuesday, October 27^th

• Australia: RBA’s Bullock speech;
• France: Producer Prices;
• Spain: Unemployment Survey;
• Eurozone: ECB Bank Lending Survey, Private Loans, M3 Money Supply;
• United States: Durable Goods Orders; Housing Price Index, Consumer Confidence. Auctions: 2-year Note Auction;

Wednesday, October 28^th

• Australia: Consumer Prices;
• Frances: Consumer Confidence;
• Spain: Retail Sales;
• Italy: Trade Balance, Producer Price Index;
• Switzerland: ZEW Survey Expectations;
• United States: MBA Mortgage Applications, Goods Trade Balance; Fed’s Kaplan Speech. Auction: 5-year Note;
• Canada: BoC Rate Decision and Monetary Policy Report;
• Japan: Retail Trade, Foreign Bond and Stock Investment, Large Retailers Sales.

Thursday, October 29^th

• New Zealand: ANZ Business Confidence and Activity Outlook;
• Australia: NBA Business Confidence;
• Japan: Monetary Policy and Interest rate.
• Spain: Consumer Price Index;
• Germany: Unemployment Rate;
• United Kingdom: Net Lending to Individuals, Consumer Credit, M4 Money Supply;
• Eurozone: Consumer Confidence, Business Climate;
• Italy Auction: 5-year and 10-year Bond;
• United States: Core Personal Consumption Expenditures, GDP, Initial Jobless Claims;
• Eurozone: ECB Interest rate decision and Deposit Rate Decision;
• Germany: Consumer Price Index, Pending Home Sales;
• Japan: Industrial Production, Job/Applicants Ratio, Industrial Production;

Friday, October 30^th

• Australia: Private Sector Credit, Private Price Index;
• France: GDP;
• Germany: Retail Sales, GDP;
• Switzerland: Real Retail Sales and KPF Indicator;
• France: Consumer Spending and Price Index;
• Spain: GDP;
• Italy: Consumer Price Index;
• Eurozone: Consumer Price Index, GDP, Unemployment Rate;
• United States: Core Personal Consumption Expenditure, Personal Income, Personal Spending, Michigan Consumer Sentiment;
• Canada: GDP.