US: Corporate Credit Update: Back on the Front Burner
Investment-grade corporate credit risk surged higher Friday, markets reacting negatively to higher than estimated May CPI of 1.0% vs. 0.07%, compared to 0.3% in April. Short end rates hammered (2YY over 3.0% at 3.0424% - highest since 2008), stocks reacted negatively (ESM2 -100.0 3916.25) as markets priced in more aggressive rate hikes from the Fed to combat inflation.
- Investment grade risk measured by Markit's CDXIG5 index as May 20 levels: +4.606 at 91.994; CDXHY5 high yield index at 98.715 (-1.278).
- Outperforming credit sectors (tighter or least wide): Materials and Sr Financials both (+2.2) followed by Consumer Discretionary (+2.5) and subordinated Financials (+2.9).
- Lagging sectors (wider or least narrow): Communications (+5.6), followed by Technology (+4.3) and Energy (+4.0).
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GBPUSD TECHS: Trading Near Its Recent Lows
- RES 4: 1.2877 High Apr 25
- RES 3: 1.2772 High Apr 26
- RES 2: 1.2638 High May 4 and a key resistance
- RES 1: 1.2406 High May 9
- PRICE: 1.2320 @ 16:53 BST May 11
- SUP 1: 1.2252 Low Jun 29 2020
- SUP 2: 1.2200 Round number support
- SUP 3: 1.2162 Low May 22 2020
- SUP 4: 1.2081 76.4% retracement of the Mar ‘20 - Jun ‘21 uptrend
GBPUSD is unchanged and is still trading closer to its recent lows. The outlook remains bearish. The recent breach of 1.2412, Apr 28 low, confirmed a bear flag breakout on the daily frequency and a resumption of the downtrend. The break lower signals scope for weakness towards 1.2252 next, the Jun 29 2020 low. Key short-term resistance is unchanged at 1.2638, the May 4 high. A break would signal a possible base.
US: Reverse Repo Operation
NY Fed reverse repo usage at 1,876.119B w/ 91 counterparties vs. prior session's 1,864.225B (all-time high of $1,906.802B on Friday, March 29, 2022).
NY Federal Reserve/MNI
US TSYS/SUPPLY: Review 10Y Auction:
Tsy futures holding near session highs but scaling back support slightly after $36B 10Y note auction (91282CEP2) tails: 2.943% high yield vs. 2.925% WI; 2.49x bid-to-cover off last month's 2.43x
- Indirect take-up climbs to 70.30% vs. last month's 64.33% high; direct bidder take-up at 18.21 from 17.02%, while primary dealer take-up falls to 11.49% vs. 18.66%.
- Next 10Y auction (re-open) is tentatively scheduled for June 8.
