MACRO ANALYSIS: MNI US Macro Weekly: Payrolls Drives Rates Recalibration

• Date $MM Issuer (Priced *, Launch #)
• 06/04 $2.5B #British Colombia 10Y SOFR+95
• 06/04 $Benchmark IDA 5Y SOFR+46
• 06/04 $Benchmark RBC 60NC5 6.75%
• 06/04 $Benchmark Mutual of Omaha 3Y +85a
• 06/04 $Benchmark Macquarie 3Y +50, 3Y SOFR+74
• 06/04 $Benchmark Brazil +5Y 6.125%a, 2035 tap 7.125%a
• 06/04 $Benchmark Targa Resources 5Y +100, +10Y +133
• 06/04 $Benchmark Gerdau Trade 10Y +140
• 06/04 $Benchmark Toll Brothers investor calls

At 228bps, the Swiss - German 10y government bond yield spread continues to print close to the widest levels on record following the extension of the widening which started 2022.

• From a broader perspective, the moves lower in Swiss 10y yields seen over the past two years are striking when viewed against global core FI markets, and highlight the unique position the Swiss economy finds itself - characterized by low and slowing inflation and a prudent federal fiscal position.
• The more recent extension of the longer-term trend of widening of the Swiss - Bund spread was underpinned by:
  • a) the pronounced dovish repricing of near-term SNB expectations relative to the ECB, which notably outpaced a similar move in the Eurozone despite the SNB's proximity to the zero lower bound.
  • b) the Bund curve steepening outpacing that of Swiss government bonds amid rising term premia in Germany following the fiscal expansion plans of the country.
  • c) some haven flow amid the pronounced CHF appreciation following the firmer US trade stance might also have been at play.
• Some of these factors might be running out of steam looking forward: CH STIR is already pricing -0.35% terminal overnight rates in Switzerland, leaving limited room for further downside adjustment, and CHF has already pared some of its gains seen during April (the CHF REER is ~2.5% off YTD highs). This leaves the German fiscal picture as well as global core FI steepening trends as key for further moves in the spread.

• From a technical perspective, key levels to watch towards further widening would be the 231bp seen on May 14 as well as the lowest close in recent decades, at 239bps seen in March 2022.

  

• Stocks are drifting in modestly higher territory ahead midday, inside relatively narrow ranges after mixed morning data. Currently, the DJIA trades up 21.28 points (0.05%) at 42545.8, S&P E-Minis up 4.75 points (0.08%) at 5986.5, Nasdaq up 42.3 points (0.2%) at 19441.72.
• Generally speaking, stocks pared modest early gains after lower than expected ADP jobs gains, drifted higher into final S&P Global services/composite PMIs, then pared gains again after mixed ISM Services data (index & new orders lower than expected, prices paid and employ higher).
• Communication Services and Health Care sectors led gainers ahead midday, the former supported by Meta Platforms +2.33%, Live Nation Entertainment +2.31%, Netflix +1.24% and Match Group +1.10%.
• Pharma and biotech shares supported the Health Care sector with Charles River Labs +4.46%, IQVIA Holdings +3.82%, Eli Lilly +2.37% and Regeneron +2.28%.
• Conversely, Energy and Utility sectors underperformed late morning as crude prices turned lower (WTI -0.62 to 62.79) after headlines announced that "Saudi Arabia wants OPEC+ to continue with accelerated oil supply hikes," Bbg reported.
• Energy sector laggers included Valero Energy -2.67%, Phillips 66 -2.35% and Marathon Petroleum -2.34%. Meanwhile, Constellation Energy -3.08%, American Water Works -1.50% and Alliant Energy -1.29% weighed on Utilities.