- 10-year US Treasury yield struggling for direction, finishing the week at 3.46%. Strong payrolls report for April counteracted by jump in initial claims. 30-10 years portion of the US Treasury yield curve has un-inverted. The 30-year yield was 3.78% on Friday (pages 2-4)
- Breakeven inflation rates remain ‘well-anchored’ (pages 5-6)
- But US real yields are sticky to the upside. Fiscal policy remains excessively loose: the Federal budget deficit widened to $1.94tr in the twelve months to April. The 30-year real yield remains above 1.50% (pages 7-10)
- Financial stress/credit spreads are so far defying the Federal Reserve Senior Loan Officer Opinion Survey. Tighter bank lending standards, but high yield corporate bond selloff yet to materialise. High yield spreads not showing signs of stress yet (pages 13-15)
- Bank rate up to 4.5% last week (UK). Inflation path revised higher: CPI inflation now projected to ease to 5.1% in Q4 2023 (3.9% previously). CPI inflation was previously forecast to dip below 2% by Q2 2024. This has been pushed back to Q1 2025. Gilts not able to sustain a rally (page 19)
- UK real yields remain well into positive territory, and still climbing. The ‘premium’ (UK-US spread) of Gilt yields over Treasuries keeps widening (30-year UK Gilt yielding 4.16%, vs 3.78% for 30-year US Treasury) (pages 21-22)
- A stronger week for the dollar index (+1.48%). Euro softer against USD, and on a trade-weighted basis. Renminbi weakened against USD, despite China’s record trade surplus (pages 29-32)
- Indeed, there remains a lot of doubt over the strength of the Chinese recovery/reopening. Industrial metals fell sharply, with a big drop in copper prices. Iron ore futures have been falling (pages 33-38)
- The weak inflation data from China sent CGBs rallying (page 53)
- S&P 500 at 4124.08. The S&P 500 was broadly flat on the week (-0.3%): energy underperformed (-2.2%); communication services outperformed (+4.3%). Big tech market cap share is rising back towards record high (pages 42-44)
- 10-year government bond yields in Turkey, South Africa jump (pages 58-59)
- Mexican peso continues its strong run on a trade-weighted basis, benefitting from IRA (page 62)
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