Markets
Selling pressure on global bond markets eased a bit yesterday. Even so, the relieve, if any, was small compared to the sharp rise especially of long-term yields at the end of last week. Headlines throughout the day on the developments in the Middle-East conflict were mixed at best and didn’t bring clear guidance on a roadmap to a solution around Hormuz. Oil also showed some nervous intraday swings. At the end of the day, Brent closed off the intraday highs (near $110/b), after US President Trump said he was asked by regional allies to put off a new strike on Iran as they saw chances reaching a deal soon. (US) yields to some extent still moved in lockstep with the intraday pattern of oil. In a limited steepening move, the 2-y yield fell a modest 2.5 bps. However, even in a daily perspective there was no relieve at the long end of the curve (30-y +0.7 bps, close at 5.12% only a whisker away from the 2023 top of 5.176%). A similar (or even worse) pattern was visible for German and Japanese LT yields. German yields eased between 2.8 bps (2-y) and 0.5 bps (30-y), but the 30-y yield at 3.7% intraday still touched the highest level since mid-2011. The 30-y Japanese yield at 4.15% even trades at the highest level since the launch of the tenor. The correction in UK bond yields was a bit more outspoken after Friday’s sell-off with yields retracing between 7 and 8.5 bps across the curve. A spokesman of potential UK PM contender Andy Burnham said that he didn’t intend to change the government’s self-imposed borrowing limits/framework as currently applied by UK Chancelor Reeves. However, it’s far from sure whether this will be enough to keep calm at UK bond markets when the leadership contest continues over the next weeks. It helped to take some pressure off sterling with EUR/GBP easing from the 0.873 area to close at 0.867. Equities at least were not hugely inspired by the “pause” in the bond market. US indices changed between +0.32% (Dow) and -0.51% (Nasdaq). The Eurostoxx 50 regained a modest 0.36%. Question remains whether/to what extent high risk premia/real yields at the long end of the curve might become a factor for other markets of risk assets (US 10-y real yield at 2.10% is nearing the end March top). In FX markets, DXY tested the end of April top near 99.34, but closed at 99.2. EUR/USD rebounded from 1.162 to 1.1655.
Yesterday’s trends basically continue this morning. Japanese (LT) yields remain upwardly oriented (30-y +6.3 bps). The US 30-y yield also holds near 5.15%. This apparently weighs on equities (Nikkei -0.56%, US equity futures losing 0.3%-0.6%). Eco data today probably are again second tier with only US weekly ADP data scheduled for release. We also keep an eye at remarks from ECB Chief Economist Philip Lane in a panel discussion in Frankfurt. At the time of finishing this report, UK labour market data came in mixed to tentatively softer than expected. The unemployment rate of the 3-month period to March rose from 4.9% to 5%. Monthly payrolled employees in April declined a substantial 100k (from -28k in March). Sterling holds little changed near EUR/GBP 0.868 in a first reaction.
News & Views
Fitch Ratings said the default rate for US private credit loans edged higher from 5.7% in March to 6% last month – the highest since the agency began tracking in August 2024. 10 defaults were recorded in April, the bulk of which by issuers in the industrial and manufacturing sector (accounting for four events). Of those 10 events, six were new unique defaulters while four were serial defaulters. Seven of the 10 defaults involved maturity extensions while the remaining three were offered to pay interest in additional debt in lieu of cash interest. In the twelve month rolling period, Fitch recorded 99 default events of which 81 for the first time, also the highest ever.
Japanese Q1 growth marginally topped expectations. The 0.5% quarterly pace (2.1% annualized, quickest since September 2024) compares with the 0.4% expected but follows a downwardly revised 0.2% in Q4 of last year. Private consumption grew 0.3% and carried 0.2% of total growth (ie. the contribution). Fixed capital formation accounted for 0.1% of quarterly growth. Exports rose 1.7% and imports only by 0.5%, resulting in a positive net export contribution of 0.3%. Japanese assets were little moved by what is considered an outdated report which does not capture the full impact of the Iran war. But it could persuade doubting Japanese monetary policymakers to hike rates to counter the inflationary impact in an economy that went into the conflict in solid shape. USD/JPY is trading a tad stronger in the 159 area. Japanese yields continue their ascent towards multidecade/record highs across the curve. The long end underperforms with rates rising about 6 bp
