On Wednesdaythe FOMC decided to leave the policy rate unchanged, which was in line with expectations albeit with a hawkish rhetoric. The statement resulted in a few significant modifications. The Fed’s monthly volume of QE purchases will behalved: from USD 40bn to USD 20bn in UST, and from USD 20bn to USD 10bn in MBS. According to the announced plan QE is to end in March, after which the rate can be increased.Alsoa section in the statement about the regulator’s commitment to using the entire range of measures to boost the US economy had been removed. The S&P 500, which had begun on a firmer note, lost the gains as Powell spoke and fell roughly 2.3% in reaction. By the end of the day, it was down 0.2% from the previous day’s closing. US 10Y yielddecreased from 1.864% to 1,846%.
Euro Stoxx 50 futures tumbled as much as 3.1% before paring some losses, while contracts on the S&P 500 and Nasdaq 100 also slid. 10 YR GDBR change from -0.074% to -0.055% on Wednesday. Defence Secretary Ben Wallace said on Thursday that the U.K. could support NATO countries by increasing its forces to act as a deterrent toany further Russian aggression.This comes a day after the U.S. and NATO delivered written responses toRussia, broadly rejecting Moscow’s demands that the Western alliance redraw its borders, close its door to Ukraine’s potential future membership and roll back forces from former Soviet states.The ball is now in President Vladimir Putin’s court. Russia has denied it intends to invade Ukraine, despite massing thousands of troops, tanks and equipment near its neighbours’ eastern border.
At that time Asian IG Corps started with spreads unchanged after a hawkish Fed overnight but seen dealers hitting some bids 3-5bps wider as the morning goes by. Benchmark names are the targets e.g.Sinoch 31 and Haohua 30 down 147 and 148, BABA 31 down 110. Bottom fishers came in at the wides taking advantage of the higher UST yields and wider spreads, recovering a couple bps since. Still price discovery mode for now, but liquidity obviously thinner going into holiday period, so exacerbating the spread movements. News wise, Sino ocean announced a retap of the 2025 green bond, injecting more confidence into the property counters. We see mainly buyers on Sinoce across the curve this am.
Since the beginning of this year, geopolitics has been at the center of Russian news feeds, and this week was no exception, with selling interest dominating among benchmarks in CIS countries region. BELRUS 26 was one of the most pressured names, widening 100bp and 110bp versus Armenian and Uzbek sovereign curves, respectively. RUSSIA 26 spreads against Azerbaijan, Kazakhstan and Uzbekistan widened 60-70bp WoW. UKRAINE 25, on the other hand, recovered marginally, with spreads to Georgia and Armenia narrowing 48bp and 26bp, respectively.
In Argentina, local press reports NSA advisor Jake Sullivan is involving himself in advancing talks between the Fund and Argentina. This follows comments from the IMF yesterday that they are hopeful of moving negotiations forward in the near-term. Separately, the government is “still not sure” if it will make the $730 million payment due this week. Brazilian Petrobras long end has lagged the rest of the curve as well as the performance of quasis elsewhere in Latam. 10s / 30s are +120bps steep and PETBRA 50s have widened 20bps to the start of the year and 100bps since October. Given absolute yields of 6.4%, bonds look interesting especially in the context of the record cash flow generation the business is throwing off, political risks notwithstanding.