Marvin Loh – Managing Director, BNY Mellon Capital Markets, LLC
We have retraced much of the June sell-off over the past few weeks, with treasury yields falling between the last FOMC meeting and the NFP beat. Risk assets have fared even better, with corporates and high yield returning to early June levels, although remaining wide to mid-may levels, which corresponded to the first time that Chairman Bernanke mentioned tapering. With today proving a bit of an exception, with rates and spreads weaker, the overall market has been range bound and supportive of risk taking. Volatilities have compressed after spiking in June, although remain higher than the tranquil period that marked the start of the year. An avalanche of issuance today is cited as gapping both the spread and government markets, supported by the lack of movement in the swaps market. There have only been 2nd tier economic releases this week, which is set to change next week when we get our first look at 2Q:13 GDP, non-farm payrolls, monthly retail sales figures and the FOMC. We do not expect much change in the FOMC messaging, which will continue to support a dovish tapering-is-not-tightening message, although we continue to believe that tapering is in the cards for the fall. The markets have fallen nicely in line with Bernanke’s wishes, which prompted us to look at possible tail risk in the form of liquidity issues, an overly aggressive Fed and continued global growth concerns. Read the full commentary now.
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