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David Fuller and Eoin Treacy's Comment of the Day
Category - Fixed Income

    German Inflation Sinks to Level Last Seen Before War in Ukraine

    This article from Bloomberg may be of interest. Here is a section:

    German bonds pared declines and the euro trimmed gains after the release, as markets increasingly come around to that higher-for-longer narrative. The yield on 10-year government debt is hovering just below 3% — the highest since 2011. The euro is flirting with its weakest level against the dollar this year, near $1.05.

    Money markets are wagering on two quarter-point rate reductions by end-2024, compared with as many as three just two weeks ago.

    Inflation not only remains elevated but is accelerating in some countries. Earlier Thursday, Spain reported a jump to 3.2% this month on electricity and fuel costs. Citing the advance in oil that’s brought prices near $100 a barrel, its central bank sees a further acceleration to 4.3% in 2024. In Ireland, price growth quickened to 5% from 4.9%.

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    Email of the day on yield curve de-inversion and lack of demand for Treasuries

    Eoin, you’re rightly highlighting the dangers of the steepening Yield Curve, or rather “uninversion” currently being undertaken. Typically though, this is a result of the Fed doing a U-Turn and cutting rates at the front end to soften the impact of a sluggish economy, or one in recession.

    In this instance, it’s the other end of the curve showing the movement, only higher, as inflation continues to be a concern and the demand for longer term bonds isn’t enough to match the considerable supply. How does the change in dynamic to this “uninversion” influence your thinking?

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    Stocks Tumble, Dollar Climbs With Traders on Edge

    This article from Bloomberg may be of interest. Here is a section:  

    “Investors are beginning to realize that a ‘higher for longer’ interest rate environment is a likely outcome and are slowly adjusting to the ‘new normal,’” Paul Nolte, a senior wealth manager at Murphy & Sylvest Wealth Management, wrote in a note. “Higher-for-longer has been the mantra of the Fed for a few months. It is only recently that the markets have been taking them at their word.”

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    Global watchdog tackles 'vulnerabilities' in leveraged loans

    This article from Reuters may be of interest. Here is a section

    Another issue is overly-aggressive adjustments to earnings before interest, taxes, depreciation and amortisation (EBITDA) of a company borrowing money, IOSCO said.

    "Alongside looser covenants, there is evidence that headline debt-to-EBITDA may be understated," it said.

    Investors have long worried that the EBITDA used, boosted by "add backs", may not be achievable, and that it masks the true amount of leverage.

    "EBITDA adjustments based on future synergies, earnings and asset disposals should be made on a reasonable basis and borrowers are encouraged to provide clear justifications of these adjustments to investors," the proposed guidance says.

    There is also a lack of transparency in the private finance market, which has experienced rapid growth, with private market assets under management reaching $12.8 trillion in June 2022, IOSCO said in a separate report.

    U.S. companies have raised more money in private markets than in public markets in each year since 2009, it added.

    "While the inherent opacity in private finance provides investors with some insulation from the transparency costs faced in public markets, it could also jeopardize availability of information that regulators and investors require to effectively assess risks," IOSCO said.

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    Fed Leaves Rates Unchanged, Signals Another Hike This Year

    This article from Bloomberg may be of interest. Here is a section:

    “We are committed to achieving and sustaining a stance of monetary policy that is sufficiently restrictive to bring inflation down to our 2% goal over time,” Powell said at a press conference following the decision.

    He emphasized the Fed will “proceed carefully” as it assesses incoming data and the evolving outlook and risks, echoing remarks he made at the Fed’s annual symposium in Jackson Hole, Wyoming last month.

    After raising rates rapidly last year, “now we’re fairly close, we think, to where we need to get,” Powell said.

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    Sunak Delays UK's Petrol Car Ban as Part of Green U-Turn

    This article from Bloomberg may be of interest. Here is a section:  

    Sunak said in a speech on Wednesday in London that he would push back by five years to 2035 a plan to bar the sale of new petrol and diesel cars, casting the decision as an effort to protect families struggling with bills. The vast majority of vehicles sold in the UK would likely be electric by 2030 without government intervention, he said.

    “At least for now it should be you, the consumer, who makes that choice, not the government forcing you to do it,” Sunak said in Downing Street. 

    While Sunak insisted he was still committed to reaching net zero by 2050 and not watering down any targets, he said the UK must act in a “more proportionate way.” He affirmed his belief that climate change was “real and happening,” but said that the debate over the issue had been “charged with far too much emotion and not enough clarity.” 

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    Bunds Slide as Traders Mull Higher-for-Longer

    This note may be of interest. Here is a section:

    As evidence of economic stagnation increases the market is turning its attention to “how long the ECB will be able to keep rates steady,” said Mauro Valle, head of fixed income at Generali Investments. “It cannot be ruled out that the reversal of the monetary cycle may occur sooner than expected.”

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    Private-Equity Giant Blackstone Joins Coveted S&P 500 Club

    This article from the Wall Street Journal may be of interest. Here is a section: 

    Earlier this month, analysts at Goldman Sachs estimated that Blackstone could attain a 0.19% weighting, implying about $15 billion of demand from index-tracking funds. Some of that buying may have already taken place: Blackstone stock has risen 9% since its inclusion was announced on Sept. 5.

    Blackstone is joining after S&P Dow Jones Indices in April relented on a previous ban for new index entrants with multiple share classes.

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