Weekly fixed income review

Week to 8 November 2019

  • US Treasuries sold off during the week as investors reacted to positive developments in US/China relations. The 10-year Treasury jumped 15bp on Thursday, its biggest single-day move since the election of President Trump, on the back of reports that the US and China have agreed to remove tariffs in phases. The yield on the 10-year note ended the week 22bp higher, while the 30-year was up 21bp.
  • In US credit markets, corporate spreads tightened as positive trade headlines and economic data (particularly the strong jobs report) continue to boost risk appetite. We could be seeing a return of the ‘Goldilocks’ period if easy Federal Reserve policy and an improving economic backdrop combine to help push spreads tighter into year end. There were deals from Domino’s Pizza, Consolidated Edison, Nordstrom and Cheniere.
  • European government bond yields rose as sovereign yields across the board also reacted to the more optimistic trade outlook. Yields on the French 10-year benchmark note moved above 0% for the first time since the summer, rising 12bp to 0.05% (see chart below). Belgian, Finnish and Austrian yields also moved closer to positive territory while German bunds climbed 14bp to -0.25%.
  • The Bank of England did not change the base rate, but lowered its inflation outlook, now forecasting CPI to remain below the bank’s 2% target until mid-2021. This is based on current market expectations of a single rate cut. If rates are unchanged – the majority view of the central bank’s Monetary Policy Committee – CPI is forecast to remain below 2% until mid-2022.
  • European corporate bond issuance year-to-date has surpassed the €1.8tn annual record set in 2017, with €12bn of new bond sales from companies including Apple and Bayer on Thursday. However, there are signs that the market for euro-denominated bonds may be saturated as new sales from Bollore and Nykredit Realkredit were postponed.

 Chart of the Week: The yield on 10-year French debt moves above zero (%)

Chart of the Week The yield on 10-year French debt moves above zero (%)_08.11.2019

Source: Bloomberg. Data as at 08 November 2019.

Bloomberg statistics_08_Nov_2019

Source: Bloomberg, 08 November 2019

Economic calendar

11 November: UK GDP
12 November: UK unemployment, EU ZEW Economic Sentiment Index
13 November: German inflation, UK inflation, EU industrial production
14 November: US unemployment, EU GDP, German GDP
15 November: US retail sales, EU inflation

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