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WEEKLY FIXED INCOME UPDATE

For the week of March 7, 2018

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CHART OF THE WEEK

 

Japanese government bonds were impacted by a rumor last week that the Bank of Japan (BOJ) is considering widening its yield targets for longer maturities, allowing the JGB curve to steepen, in an effort to potentially help banks and make QE more sustainable. Yields moved sharply higher as a result. The next BOJ meeting is July31st, and while an announcement of a change is unlikely at that meeting, it is possible they will put the option on the table for subsequent action.
WEEK IN REVIEW
  • In a week that reversed many of the prevailing trends for the year, we saw improving macroeconomic sentiment,helped by constructive trade comments from European and U.S. leaders. That was offset somewhat by profit warningsfrom big tech firms, most notably Facebook. European stocks indexes rallied almost 2% on the week.
  • Corporate spreads tightened across the board last week with health care and telecom leading the way in high yield, as they have for most of the year.
  • Higher treasury yields led to negative returns for the Barclays Aggregate and several investment grade sectors, while investment grade and high yield corporates generated positive returns as spreads tightened in the face of rising rates.
  • The U.S. economy proved once again that it is leading the continued expansion of global economic growth with 7.1% nominal gross domestic product (GDP) and 4.1% real GDP growth for Q2, reported on Friday. The strong gains in both prices and real economic growth further increases the probability of a fourth rate hike for the year at the December meeting. The probability of a December hike has been trending upward, and is now over 70%, based on solid economic data such as Friday’s GDP report. CCC high yield continues to be the best performing segment in the fixed rate corporate debt space, up 4.34% year todate compared to a 2.57% loss for investment grade corporates. CCC yields are approaching their 6 month low, and spreads are close to their tightest levels in 4 years.
THE WEEK AHEAD

Tuesday

Personal Income and Outlays

 

Wednesday

FOMC Meeting Announcement

 

Thurday

Jobless Claims

 

Friday

Employment Situation
International Trade





   

Index Returns

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TREASURY RATES

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CREDIT SPREADS

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OTHER INDICATORS

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