Weekly fixed income review

Market review: week to 18 October 2019

  • US bond yields rose and corporate spreads tightened as progress with China on the phase one “agreement” lifted sentiment, amid reports that trade negotiators were working on trade deal text to be signed by their respective presidents next month. In US credit markets, USD primary activity was limited as earnings season got underway, although there was new issuance from a handful of financials. Additionally, the steepening of the yield curve led to some renewed buying from Asia. Treasury yields rose over the week buoyed by optimism among investors over seemingly reducing tail risks.
  • The agreement of a Brexit deal between the EU and UK government also buoyed risk sentiment, resulting in a strong week for European credit. Prime Minister Boris Johnson announced on Thursday from the EU Summit in Brussels that the two sides had agreed “a great new deal that takes back control”. The UK Parliament will sit tomorrow (dubbed “Super Saturday”) in order to vote on the newly-agreed deal, which has replaced the controversial backstop with a protocol that applies only to Northern Ireland. The DUP has opposed the deal, branding it “toxic”. In government bonds, Gilt and Bund yields rose, while Italian spreads slightly tightened over the week.
  • Chinese and US economic data releases were mixed. China Q3 GDP came in slightly weaker than expected at +6.0% (vs. +6.1% expected). On the other hand, China’s September industrial production beat on expectations at +5.8% yoy (vs. +4.9% yoy expected) and retail sales printing in line at +7.8 yoy. Meanwhile in the US, industrial production dropped -0.4% in September (vs. -0.2% expected), but building permits came in higher than expected at 1.39m (vs. 1.35m expected).
  • Turkey agreed to halt military operations in Syria, which began earlier this month, after the US committed to reversing sanctions on the country. US officials have described the agreement as a ceasefire, while Turkey considers it a 120-hour pause for Kurdish forces to withdraw from the safe zone.

Chart of the Week: Sterling rallies against euro amid agreement of Brexit deal between EU and UK government

Chart of the Week Sterling rallies against euro amid agreement of Brexit deal between EU and UK government_18-10-19_V1

Source: Bloomberg. Data as at 18 October 2019.

Bloomberg statistics_18_Oct_2019_V1

Source: Bloomberg, 18 October 2019

Economic calendar

19 October: UK Parliament vote on Brexit deal
21 October: Germany September PPI; Japan September trade balance
23 October: US weekly MBA mortgage applications
24 October: Preliminary October manufacturing, services and composite PMIs in US, euro area, Japan, France and Germany; US preliminary September durable goods orders, September new home sales; ECB policy decision
25 October: France September PPI; Germany Ifo business climate index

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