Weekly fixed income review

Market review: week to 27 September 2019

  • Congresswoman Nancy Pelosi announced an impeachment inquiry into President Donald Trump after a whistleblower complaint alleged the president had improperly acted during a call with Ukrainian President Volodymyr Zelenskiy. Pelosi’s impeachment inquiry states the content of the call and President Trump’s withholding of the complaint are both grounds for impeachment. Treasury yields, which fell earlier in the week, recovered to end the week only 3bp lower as investors shrugged off the possibility of an impeachment and focused on news about a possible trade deal with China.
  • The UK Supreme Court unanimously ruled against Prime Minister Boris Johnson’s proroguing of parliament, judging that the prime minister’s advice to the Queen to suspend parliament was unlawful. Gilt yields were largely unchanged on the news but ended the week 11bp lower after Bank of England member Michael Saunders suggested the central bank is considering a rate cut due to persistently high levels of Brexit uncertainty.
  • There was soft economic data out of Europe with manufacturing and services PMIs for the region declining to 45.6 and 52.0, respectively. Germany’s industrial slump continued as the country’s manufacturing PMI declined to 41.4, the lowest reading since 2009. The German services reading fell to 52.5 while the composite dipped into contractionary territory for the first time since 2013, falling to 49.1 and down from 51.7 in August. (See chart below). German bund yields fell immediately after the data release and ended the week 6bp lower.
  • Global corporate spreads were flat on the week, moving 1bp wider to 115bp as the high level of supply this month, combined with political headlines covering everything from trade to Brexit to impeachment weighed on market sentiment. There was weakness in the tobacco sector with Altria widening over 30bp due to negative vaping headlines and Philip Morris calling off merger talks. Although new issuance slowed down, there were deals from Black Hills, CNOOC, and Lyondell. September has been one of the five busiest months on record with over $150 billion new issues. European credit has been similarly busy with €25 billion in issuance this week.

Chart of the Week: German manufacturing PMIs trend lower

Chart of the Week- German manufacturing PMIs trend lower_27_sEP_2019

Source: Bloomberg. Data as at 27 September 2019

Bloomberg Chrat_27_Sep_2019

Source: Bloomberg, 27 September 2019

Economic calendar

30 September: German retail sales and inflation, UK GDP, EU unemployment
1 October: EU final PMIs and inflation, US manufacturing PMI
3 October: France retail sales, US jobless claims
4 October: US unemployment and nonfarm payrolls

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