The rally in credits space continued last week after lower-than-expected inflation figures and mixed US economic data supported the narrative that the US Federal Reserve has reached the end of their hiking cycle. US Treasury yields ended the week 14-23 basis points (bps) lower with 5-year and 10-year yields falling more than 2-year yields. The lower inflation data and big drop in UST yields also boosted market appetite for riskier assets, which helped push credit spreads 8-10 bps tighter for the week.

• US October inflation printed at 3.2% year-on-year, lower than the 3.3% expected and the previous month’s 3.7%.
• Similarly, US Producer Price Index (PPI) came out at 1.3% vs 1.9% expected and September’s 2.2%. These show that inflation is trending towards the Fed’s 2% inflation goal.
• Despite US Retail Sales coming out better than expected, Jobless Claims ticked higher, hinting at possible weakness in the labor market.
• The market is currently pricing in a pause at the December Federal Open Market Committee (FOMC) meeting and three to four 25-bp worth of cuts for next year, with the first cut expected in June 2024.