- US: encouraging signs of recovery;
- TLTRO-III: will lend €1.3T;
- Dollar firms up;
- Fed starts purchases of single-name corporate bonds.
Last week turned out to be positive for risk assets despite some profit taking on quadruple-witching Friday in the US. The S&P 500 closed on a 1.8% weekly gain whilst European indices were up 3%. The decline in the euro below $1.12 surely benefitted European stocks. The Fed, confronted with lower foreign demand for Treasuries, must now support the dollar. The yield on 10-year notes oscillates about 0.70% in the US and around -0.40% on Bunds. Sovereign bond spreads eased further. In parallel, breakeven inflation rates widened by 9bp on 10-year TIPS. US credit tightened by 13bp. The Fed has defined its benchmark allocation for single-name corporate bonds. In Europe, corporate debt also outperformed risk-free bonds. High yield bonds shrank despite Moody’s’ warning that defaults will creep higher in the second half. US high yield spreads decreased by 33bp last week to 515bp vs. US Treasuries.