The past week was marred by new year-to-date highs in yield and geopolitical tensions, leading to another poor week for credits. Stronger-than-expected US Retail Sales was followed by hawkish comments from US Fed Chair Jerome Powell, Vice-Chair Jefferson, and Bostic.
As a result, the yield on 10-year US Treasuries hit 4.68% before explosions in Iran caused a temporary risk-off move. UST yields ended 1-5bps higher for the week, with the curve flatter. Meanwhile, credit spreads were 5-10 bps wider overall while certificates of deposit (CDs) were up to 4 bps wider.
- US Retail Sales growth came out stronger-than-expected at 1.1% vs the 0.4% consensus estimate, another indication that the US economy may be running too hot to justify cutting interest rates.
- Both Powell and Jefferson said recent inflation readings show that inflation is stubborn and rates may have to stay high “for longer”.
- Bostic added that he thinks the Fed won’t be in a position to cut rates until the end of the year.
- Headlines of explosions in Iran caused a risk-off move during Friday’s Asia session but was mostly reversed after news that Iran’s nuclear facilities were unaffected.
- Markets are now pricing in 40 bps of cuts in 2024 (roughly unchanged from last week) with September being penciled in as the first cut.