Table of Contents
US Treasuries (UST)
Yield Curves
Corporate Bonds
*Special Poll*
USTs:
The US Treasury recently auctioned off 3, 10 & 30 year bonds. All of the different bonds are expected to be issued on the same day 9/15/2023. Below are the auction results for the 3 different bonds. In order from lowest duration to longest duration.
I do not have too much to add about the state of USTs. Other than that you might want to keep an eye on basis trades being put on by funds.(Bloomberg Story) If you want to really understand the mechanism behind trades like basis trades and the US monetary plumbing in highly recommend you checkout
. Easily one of the best Substacks I read!As shown below in Figure 4 we continue to see yields rise. Putting more and more pressure on bond prices. (Figure 4)
Yield Curves
In spite of the most rapid month-over-month Consumer Price Index (CPI) increase since June 2022, bond yields experienced a significant decline following the release of the August inflation report. While core inflation showed a sequential increase, it did not reach a level that would prompt the FOMC to consider raising interest rates again in September. This is, of course, subject to market assessment and any possible news or data. Furthermore, the UST yield curve displayed a steeper slope, primarily driven by declines in short-term yields. (Figure 5)
A few things I would like to note about Figure 6 from Bespoke. The most important is that the market is pricing cuts through 2026 at a particularly aggressive speed. I personally do not think this will play out as the market is currently pricing in. Crude pushing towards $90 is also a bit concerning for the FEDs fight to bring inflation down to 2%. (Figure 6)
Corporate Bonds
Figure 7 below shows the monthly performance across the iBoxx suite of products for the month of August.
The current debt structuring of US corporations is most fueled by bonds. (Figure 8) Loans as a share of US corporate debt are still significantly below pre-GFC levels. This is likely to stay the same unless banking regulation makes a U-turn. (Figure 8)
I think Figure 9 is fairly interesting, many investors believe IG bonds will outperform HY.
In Closing
Thank you to all of my subscribers for the continued support it means a lot! Hopefully you found something in this post helpful and if not I always enjoy receiving comments.
Lastly I would like to ask you guys what topic you would like me to write a primer on? I plan on making this primer pretty long and well researched.
In my opinion all of these are very important and interesting so primers on all of these are likely coming. I am curious what you guys would be interested in the most, if you have any questions about the topics feel free to leave a comment.
DISCLAIMER: We are not Financial Advisors, and all information presented is for educational purposes ONLY. Financial markets can be highly volatile, so good risk management is a must.
great writing, thank you!