14 June 2019 by jbchevrel
A resolution in US/Mexico trade tensions offered some respite to CDS across regions in the first half of the week. Both US and European IG indices rallied around 4bp, CrossOver 15bp and CDX HY 20bp. That proved temporary, however, as a core rates rally picked up steam, pushing G3 yields to fresh lows. The sacrosanct Bund yield came to -27bp this AM, lowest level ever. We retraced this afternoon, to some extent, after US retail sales data showed that the US consumer is still strong (higher than expected results for the core and control group readings, along with higher revisions in April). As less than 20% is priced in for next week’s FOMC meeting (June 19), market participants will try, on the occasion of next week’s meeting, to figure out about the subsequent meetings, starting with July 31 (86% priced in). There are about three 25bp cuts priced in the $ OIS curve by March 2020. That is to compare with c10bp priced in the short end of the €/JPY OIS curves. This week, a major European bank called for an ECB rate cut at the September 12 meeting, which is scheduled to be the penultimate meeting for President Draghi (last one being October 24). Next week could prove pivotal in this respect, with CPIs being release in the Eurozone, the UK, Canada and Central Banks meetings being scheduled in the US, the UK, and Japan.