Macro Monitor
US Bond Market
Although the overall picture remains favorable for high grade credits, the increased exposure to interest rates with an ever thinner spread cushion does concern us. We will monitor closely for potential downgrades.
10-Year Yield: More Downside
We expect the 245-250 barrier to be tested, and if it is decisively broken, much lower yields could be in the cards.
Sell in May
This does not only apply to stocks, it applies to just about all risky assets.
Twisty Curves
The short end of the yield curve sold-off to price in an earlier-than-expected rate hike, while the long end rallied as the prospect of tightening reduced longer-term inflation expectations.
RAI Lower - Stays on "Lower Risk" Signal
Risk assets continued to perform well in March, and our monthly Risk Aversion Index (RAI) fell to near record low levels. We continue to favor high quality credits within fixed income.
RAI Falls Sharply—New “Lower Risk” Signal
This closed out the one month old “Higher Risk” signal. We continue to favor high quality credits within fixed income.
Have We Seen This Post-QE Movie Before? It’s Still Too Early To Call
We looked at the periods around the end of the three previous easing programs (QE1, QE2 and Operation Twist) and compared those patterns with the current ones for various measures. The current patterns from both an economic and a market front bear enough resemblance to the previous ones to make us a bit uncomfortable. February’s market action was encouraging, but it is still too early to rule out a post-QE fizzle.
U.S. Bonds
Given the higher volatility and increased risk aversion, high grade credits are attractive as the negative relationship between rates and credit spreads dampens the volatility of this asset class.
Risk Aversion Index Turns Higher, New “Higher Risk” Signal
We are turning defensive within fixed income and recommend moving up the quality scale.
U.S. 10-Year: 245-250 Area A Strong Barrier
We expect the 245-250 area, the upper bound of the previous lower range, to be a strong barrier.
Can The EM Problem Spread To DM? Yes, If It Gets Bad Enough
The current EM weakness is not yet a full-blown crisis but, if it does become one, it will drag down developed economies too.
A Taper & Hibernating Bears
The rise in interest rates after the taper was on the back of low liquidity around the holidays. 3% is a pretty strong upper bound for the 10-year, and a failure to stay above this level will probably see a re- test of the 275 level in the near term.
2014 Time Cycle—Lower Your Expectations & Be Patient
It’s time to update our time cycle composites, and what they say for equities in the U.S., U.K., Germany and Japan and long-term interest rates and credit spreads in the U.S.
U.S. Bonds
The thin liquidity likely magnified the move in both rates and credit spreads, but we continue seeing a friendly macro environment that supports high quality credits.
US Bond Grades
The renewed participation of credits in the risk asset rally is a welcome sign.
Risk Aversion Index Edges Lower, Stays On Its “Lower Risk” Signal
We are in the seasonally favorable part of the year and we continue favoring high-grade credits within fixed income.
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