- The US Unemployment Claims was lower than expected at 213,000 vs a forecast of 220,000.
- The US Flash Services Purchasing Managers’ Index (PMI) printed higher-than-expected at 57.0 vs 55.2.
- Markets expect a 62.8% chance of an interest rate cut by December which is higher compared to November 18’s expectation of 58.4%. This brings the implied policy rate to 4.426%.
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Market Movements
As of December 3, 2024
What to watch out for next?
What happened in the past week (Nov 19 - 25)
In the previous week, the market struggled with choppy price action that led to low trading activity in the market. Credit spreads moved lower as it tracked the move in US Treasuries, with yield-buyers emerging for support. Inflation gauges in the form of the Consumer Price Index and the Producers’ Price came out as expected, but data suggest that inflation remains sticky. Market sentiment eventually soured as US Fed Chair Jerome Powell said that the Fed is not in a hurry to cut rates, citing the strength of the US economy. Sovereign bonds were relatively weaker as cash spreads widened 3 to 5 basis points, while spreads for corporate bonds were mostly unchanged.
What to watch out for next?
What to watch out for next?
What happened in the past week (Nov 19 - 25)
In the previous week, the market struggled with choppy price action that led to low trading activity in the market. Credit spreads moved lower as it tracked the move in US Treasuries, with yield-buyers emerging for support. Inflation gauges in the form of the Consumer Price Index and the Producers’ Price came out as expected, but data suggest that inflation remains sticky. Market sentiment eventually soured as US Fed Chair Jerome Powell said that the Fed is not in a hurry to cut rates, citing the strength of the US economy. Sovereign bonds were relatively weaker as cash spreads widened 3 to 5 basis points, while spreads for corporate bonds were mostly unchanged.
- The US Unemployment Claims was lower than expected at 213,000 vs a forecast of 220,000.
- The US Flash Services Purchasing Managers’ Index (PMI) printed higher-than-expected at 57.0 vs 55.2.
- Markets expect a 62.8% chance of an interest rate cut by December which is higher compared to November 18’s expectation of 58.4%. This brings the implied policy rate to 4.426%.
What to watch out for next?
What to watch out for next?
This week, on November 27, there are the US Preliminary Gross Domestic Product quarter-on-quarter, US Unemployment Claims, and the US Core Personal Consumption Expenditures Price (PCE) Index month-on-month that will garner investor attention.
What to watch out for next?
Outlook
For the week ahead, markets will examine the Federal Open Market Committee (FOMC) minutes and the US Core PCE update for the month of October for further insights on the December FOMC meeting. However, activity will likely be light amid a holiday-shortened trading week in the US. The desk expects range-bound trading for both spread and duration.
What to watch out for next?
Disclaimer:
The report above is circulated for general information only. The opinions expressed are solely those of the contributors and are based on prevailing market conditions and public sources that are believed to be reliable. Metrobank and the report contributors/support staff do not make any guarantees or representation as to the accuracy, completeness or suitability of this report. The report may contain confidential or legally privileged material and may not be copied, reshared, redistributed, or published without prior written consent. Opinions or strategies contained in this publication may change without prior notice and should not take the place of professional investment advice or sound judgment on the part of the reader.
Bond Market Themes
Bond Market Themes
as of December 3, 2024Under a “Red Sweep” administration
The incoming Republican-dominated administration under Donald Trump has driven adjustments in the US financial markets, with Treasury yields surging as investors price in expectations of tax cuts and deregulation. The 10-Year Treasury yield has risen sharply, steepening the curve amid concerns over higher deficits and inflation. Mixed reactions were also seen in corporate credits, with investment-grade bonds having narrow spreads due to optimism over pro-business policies, while high-yield spreads widened slightly amid caution over market volatility. The interplay between fiscal expansion and Federal Reserve actions will be pivotal for Treasury yields, while corporate credits will watch for signs of economic growth and sector-specific regulatory changes.
The incoming Republican-dominated administration under Donald Trump has driven adjustments in the US financial markets, with Treasury yields surging as investors price in expectations of tax cuts and deregulation. The 10-Year Treasury yield has risen sharply, steepening the curve amid concerns over higher deficits and inflation. Mixed reactions were also seen in corporate credits, with investment-grade bonds having narrow spreads due to optimism over pro-business policies, while high-yield spreads widened slightly amid caution over market volatility. The interplay between fiscal expansion and Federal Reserve actions will be pivotal for Treasury yields, while corporate credits will watch for signs of economic growth and sector-specific regulatory changes.
Bond supply might not be enough
We believe that the current bond supply still cannot meet investor demand given the excess liquidity owing to various factors. It is estimated that the total new issuances for Asian credits will be more than USD 170 billion by the end of 2024, while the total maturities are estimated to be about USD 187 billion. This effectively returns USD 37 billion of capital to investors, which could be reinvested in Asian credits. Moreover, it is projected that there might be incremental demand from Hongkong-based China asset managers due to more relaxed rules on tapping onshore funds, and private banks with sizeable money-market exposures that may start to rotate into credit.
We believe that the current bond supply still cannot meet investor demand given the excess liquidity owing to various factors. It is estimated that the total new issuances for Asian credits will be more than USD 170 billion by the end of 2024, while the total maturities are estimated to be about USD 187 billion. This effectively returns USD 37 billion of capital to investors, which could be reinvested in Asian credits. Moreover, it is projected that there might be incremental demand from Hongkong-based China asset managers due to more relaxed rules on tapping onshore funds, and private banks with sizeable money-market exposures that may start to rotate into credit.
Don’t fight the central banks
We maintain our view that the US Fed is expected to cut 100 basis points by the end of 2024, given the progress towards the 2% inflation target. With the projected rate cuts, we expect a significant portion of the estimated USD 6 trillion in money market funds and total global money market assets of USD 9 trillion to move into credits as US Treasury yields decrease. Moreover, we also expect that the spillover effect of the People’s Bank of China’s (PBOC’s) monetary easing will set up strong technicals for Asia credit. Currently, we favor credits within Southeast Asia and India. We are also on the lookout for credit upgrade stories in Indian and Indonesian corporates.
We maintain our view that the US Fed is expected to cut 100 basis points by the end of 2024, given the progress towards the 2% inflation target. With the projected rate cuts, we expect a significant portion of the estimated USD 6 trillion in money market funds and total global money market assets of USD 9 trillion to move into credits as US Treasury yields decrease. Moreover, we also expect that the spillover effect of the People’s Bank of China’s (PBOC’s) monetary easing will set up strong technicals for Asia credit. Currently, we favor credits within Southeast Asia and India. We are also on the lookout for credit upgrade stories in Indian and Indonesian corporates.
Top Picks
Our Bonds Selection
We highlight some of the bonds we currently prefer, based credit strength and value.
Hyundai Motor
Bond:
HYNMTR 5.5 26
Credit Rating:
A3 / A- / A-
Pertamina Persero PT
Bond:
PERTIJ 3.1 30
Credit Rating:
( Baa3 / - / BBB)
International Container Terminal Services Inc
Bond:
ICTPM 3.5 31
Credit Rating:
Unrated
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