Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Head of Fixed Income Strategy
Summary: We are starting an important week full of central banks meetings. Watch out for sovereigns tightening further, with US Treasuries and Gilts leading the way.
Monday14th of September
CSPP data purchases numbers today will give evidence of scaled-up bond purchases announced last week by the ECB. It will be supportive of the corporate primary market pipeline this week, which is closing in 2019's total.
Wednesday 16th of September
Federal Reserve Policy Meeting: we will be watching whether the FED will give details regarding the framework it will use to reach their new average inflation target. The big question is: will it include in its buying program long term Treasuries? We see further upside for US Treasuries in the short term with the US Yield flattening.
Thursday 17th of September
Bank of Japan: the market is expecting BOJ to keep policy unchanged as the government is in the middle of a leadership transition. It will be important to understand whether, under Yoshihide Suga, there will be any changes within the central bank.
Bank Of England: with Brexit risk arising over the Market Bill, the market is impatiently waiting to see what the BOE is going to do next. At last month's meeting, governor Bailey said that the central bank is not excluding negative rates. Will Brexit's recent developments and a new wave of coronavirus force his hand to cut rates? Gilts yields may fall before inflation resumes.
Government bond auctions to watch out for:
15th of September: 20-Year Treasury reopening, 7-year and 17-year Gilts reopening
16th of September: 10-year Gilts reopening
17th of September: 10-year TIPS reopening
Credit Spreads are tightening
Itraxx Main: 55bps
Itraxx Crossover: 322bps
Itraxx Senior Financials: 64bps
Itraxx Subordinated Fin: 132bps
CDX Investment Grade: 69bps
CDX High Yield: 357bps
CDX Emerging Markets: 96bps