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WEEKLY FIXED INCOME UPDATE

For the week of February 10, 2020

.

CHART OF THE WEEK: PERFORMANCE OF KEY GLOBAL ECONOMIES HAD RECENTLY STARTED TO EXCEED EXPECTATIONS

Variance of reported economic data from consensus expectations (standard deviations), as measured by the J.P. Morgan Economic Activity Surprise Index

Economic data surprises – the value of key releases exceeding or falling short of consensus expectations – have turned decisively positive. This shows that performance was exceeding expectations significantly in the period leading up to the shock delivered by the spread of the coronavirus in China. Better than expected momentum going into the shock – especially the magnitude and breadth of the positive surprises – should mean that there is a greater capacity for the global economy to absorb it without GDP growth slowing too far below consensus expectations in 2020.

WEEK IN REVIEW

Markets bounced back last week from the sharp sell-off seen during the previous week, despite there being little sign of easing in the spread of the coronavirus. The death toll from the outbreak exceeded 900 by Monday morning, surpassing the death toll of the 2003 SARS episode. Still, markets appear to be looking past the short-term economic impact of the disease.

While markets pulled back on Friday, global equities rallied on the week, with the S&P 500 Index up 3.2%. Treasury yields rose across the curve, but remain 20 – 35 basis points lower on the year amid heightened uncertainty.

High yield bonds also rallied with the recovery in equity markets and improved sentiment, recovering about half of the spread widening witnessed over the previous 2 weeks. Last week’s move was led by CCC-rated credits. While BB and B-rated spreads are wider year to date, CCC-rated high yield bonds are modestly tighter.

Investment grade corporate spreads also retraced their recent widening, and are now just 3 basis points wider on the year. The market is preparing for a heavy week of supply, with as much as $30 billion expected to be priced this week.

THE WEEK AHEAD

Tuesday
Jerome Powell Speaks

Wednesday
Jerome Powell Speaks

Thursday
Consumer Price Index, Jobless Claims

Friday
Retail Sales, Industrial Production





   

Index Returns

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1 Week YTD 1-YR 3-YR 5-YR
U.S. Aggregate -0.07 1.86 9.54 4.48 3.21
IG Corporates 0.06 2.40 13.83 6.31 4.57
HY Corporates 0.63 0.63 9.69 5.87 5.92
Bank Loans -0.06 0.47 5.94 4.45 4.50
IG Corporates 1-3 Year -0.01 0.56 5.17 3.02 2.51
Global Aggregate -0.70 0.57 6.37 4.12 2.58





   
   
      
      

TREASURY RATES

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Latest 1-YR Low 1-YR High 1-WK Change YTD Change 1-YR Change
2 Year 1.4 1.31 2.55 9 -17 -108
5 Year 1.4 1.31 2.56 9 -29 -106
10 Year 1.58 1.46 2.75 8 -33 -107
30 Year 2.05 1.93 3.12 5 -34 -95





   
   
      
      

CREDIT SPREADS

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Latest 1-YR Low 1-YR High 1-WK Change YTD Change 1-YR Change
IG Corporates 96 93 130 -6 3 -30
HY Corporates 354 315 444 -36 18 -62
EM Aggregate 310 278 340 -10 9 22
CMBS 66 60 74 -2 -6 -8
MBS 41 32 57 -7 2 6
ABS 29 29 44 -2 -15 -14





   
      
      

OTHER INDICATORS

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Latest 1-WK Change YTD Change 1-YR Change
S&P GSCI 386.2 -2.6 -50.02 -19.98
Crude Oil - WTI ($) 50.32 -1.24 -10.74 -2.32
Trade Weighted Dollar* 128.01 0 -0.6 1.7
5-Yr Breakeven Inflation Rate (%) 1.63 0.03 -0.07 -0.08

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