Danske Research Team
Danske Bank A/S
Headlines
Risk-on market sentiment and tighter credit indices
Euro rates down after ECB meeting despite no new easing measures being announced
Issuers continue to print as ‘sell-side’ warns over risk-return for junk bonds
Market commentary
The markets have been in a risk-on mood this week as US, European and Asian stock markets have all trended higher. The S&P 500 reached record closes on the back of an upbeat ISM manufacturing report, signs of a labour market rebound in the ADP report and a continued dovish tone from Fed Chairman Janet Yellen, in her speech on Monday.
Benchmark treasury yields are at 10-year highs ahead of the non-farm payrolls report today. A figure around 200,000 and a decline in the unemployment rate (our expectation), should lead to further upside risks to US rates. Stronger market sentiment was also evidenced by the iTraxx Europe tightening around 6 points and the iTraxx Crossover tightening some 13 points during the week.
In the euro market, all eyes have again been on Mario Draghi and the ECB meeting on Thursday. The EONIA curve remained inverted ahead of the meeting in expectation of dovish comments from Draghi, following low inflation readings in recent months. Although no new easing measures were announced, Mario Draghi still managed to talk down EUR rates across the curve and to support peripheral government bond markets. For now, EUR rates are likely to remain within recent tight ranges with no clear direction while the ECB contemplates further easing measures. Meanwhile, low underlying rates will continue to be supportive for credits.
The market for new issues remains strong and corporates and financials continue to tap the bond market at tighter spreads. As investors continue to pour money into higheryielding assets, a number of sell-side banks and brokerages, including BNP Paribas, Citigroup, RBS and GMP Securities, have warned that yields on some junk bonds have now reached levels that no longer compensate investors for the higher risk associated with the securities (FT reports). Whether further spread compression will stabilise or revert remains to be seen, but thus far, credit markets remain in a high gear both in Europe and the Scandi markets.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
EUR/USD holds above 1.0700 ahead of key US data
EUR/USD trades in a tight range above 1.0700 in the early European session on Friday. The US Dollar struggles to gather strength ahead of key PCE Price Index data, the Fed's preferred gauge of inflation, and helps the pair hold its ground.
USD/JPY stays above 156.00 after BoJ Governor Ueda's comments
USD/JPY holds above 156.00 after surging above this level with the initial reaction to the Bank of Japan's decision to leave the policy settings unchanged. BoJ Governor said weak Yen was not impacting prices but added that they will watch FX developments closely.
Gold price oscillates in a range as the focus remains glued to the US PCE Price Index
Gold price struggles to attract any meaningful buyers amid the emergence of fresh USD buying. Bets that the Fed will keep rates higher for longer amid sticky inflation help revive the USD demand.
Sei Price Prediction: SEI is in the zone of interest after a 10% leap
Sei price has been in recovery mode for almost ten days now, following a fall of almost 65% beginning in mid-March. While the SEI bulls continue to show strength, the uptrend could prove premature as massive bearish sentiment hovers above the altcoin’s price.
US core PCE inflation set to signal firm price pressures as markets delay Federal Reserve rate cut bets
The core PCE Price Index, which excludes volatile food and energy prices, is seen as the more influential measure of inflation in terms of Fed positioning. The index is forecast to rise 0.3% on a monthly basis in March, matching February’s increase.