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Bulls And Bears Make Money, …

04 June 2019 by jbchevrel

Read ‘credit bulls’ and ‘rates bears’. Risk was on today, as some FOMC members have signaled some openness to rate cuts. That’s not the case of Clarida (was on the wires half an hour ago, refusing to touch on a potential June rate cut while the meeting is in two weeks..) and Williams, but mainly Bullard yesterday raised the prospects of such an option. In the short end, that took 1y1y $ OIS more than 125bp from November, before stronger risk made it reverse a tad today. Evans indeed sounded less dovish than Bullard and Powell didn’t explicit mean to cut, which kind of leaves the door open. Data-wise, we get the employment report on Friday, inflation on next Wednesday. The prospects of potentially more rates cuts in the US were probably the main factor pushing risk higher, starting with equities as the S&P 500 is up by almost 2% here. Speaking about our world, all the 10 on-the-run CDS indices came tighter on the day, with Europe performing broadly in line with the US. In particular in IG world, the 5y Main-CDX IG spread held stable between 0 and 1bp, coming from 3bp a few days ago. Sector-wise, miners were amongst outperformers (MTNA -13bp GLENLN -10bp AALLN -9.5bp), along with retail (AUCHAN -18bp COFP -30bp FD -14bp JWN -11.5bp KSS -9bp), autos (F -12.5 GM -9bp / London closes) and the 5y SeniorFinancial-Main spread tightened to 16.5bp, coming from 21bp a few days back. EM performed particularly strongly. Mexican officials said they expect to avoid Trump administration tariffs. Lower rates in the US also supportive of that space, especially names such as Argentina (-38bp, London close) and Turkey (-17bp).