US – Focus on CPI and Retail Sales
This week offers key data to shape the path for rates and monetary policy into year end. Tuesday’s CPI is expected to fall to 3.3% from 3.7% YoY, while core is expected to stay unchanged at 4.1% YoY. Declines in energy prices will lower the headline number. Seasonal adjustments and higher used car prices keep pressure on core, but lower rents may balance some of this effect. Wednesday’s retail sales are expected to fall by -0.3% MoM, compared to +0.7% last month, and are particular important to gauge any signs of the US consumer slowing.
Treasury Auctions – Supply Jam
The US Treasury issued $40bn 10Y bonds and $24bn 30Y bonds last week, and both auctions tailed indicating lower demand. Wednesday’s 10Y auction had no material impact on markets, but the 30Y auction was met with a strong selloff, pushing 30Y yields up to +20bps intraday. High US fiscal deficits mean Treasury issuance stays high in the coming months and years, which is a known risk but is likely to weigh on bond markets.
Credit markets – Alive and well
Last week saw a slew of credit issuance across corporates, financials and EM. According to JP Morgan, IG corporates and financials issued $45bn and €18bn, while HY issuers brought $8bn and €2bn. We see this as a tentative sign of normalization in credit markets following an episode of high rates volatility, and signals a high amount of pent-up supply. Issuance has been absorbed well, as most deals have been oversubscribed and traded up post issuance. Most notably, UBS raised $3.5bn with two AT1s for the first time since their takeover of Credit Suisse. EM new issues included $2.5bn Colombia sovereign debt across two tranches, in addition to Bulgaria, Uruguay, Turkey, Costa Rica and Indonesia.
Algebris Investments’ Global Credit Team
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