- Market Participants are spoilt for choice at the moment. Rates of 5.00%+ are being offered consistently across credit ratings.
- Credit spreads are at levels of 100+ for term deposits & the rate hiking cycle may be nearing its peak with economists forecasting 1-2 more hikes.
- These conditions are pushing more and more investors to lock in longer duration, as the chance to do so may disappear over the coming months.
- A rate of 5.35% for 2-5 year in the BBB space has attracted significant flow.
- NCD market remains on the bid tone with 3 month spreads at +50.
Fed Pauses but Not Done Yet
- The US Federal Reserve opted to leave their overnight rate unchanged overnight which was in line with the markets expectations.
- Any joy that the tightening cycle was over was short lived with only two Fed members expecting no further rate hikes this year.
- Half of the 18 members (not all voting members) expect that there will be two more hikes by year end with three members expecting three more hikes.
- Despite the Fed members expecting more tightening, they still expect the US economy to avoid a recession.
- However the market is less convinced and currently doesn’t have another hike priced in.
- With headline inflation expected to fall sharply again before the Fed’s next meeting, it will come down to how sticky core inflation remains.