BNY Mellon Global Markets – Weekly Market Commentary

It has been much the same story in most of the fixed income markets over the past week. While we could certainly blame Easter and school vacation holidays for declining volumes and volatilities over the past few weeks, we think this is a convenient excuse and simply affirms broader trends that have been in place for the better part of the year. In particular, rates remain range bound, with the 10-year trending between the 2.6% and 2.8% levels that have been in place since mid-January. Corporates continue to be a low volatility treasury alternative pushing to lower spread levels in light of the mild sell-off in the govie market over the past week. The recently maligned high yield market, whose returns have lagged the IG market on a risk adjusted basis over the past few weeks, outperformed as its spreads pushed down to levels not seen since the summer of 2007. Even emerging markets (EM), which appeared on the brink of repeating last summer’s meltdown, have moved from being one of the weakest fixed income asset classes to being the strongest market over the past few months. Taking a step back and looking at other fixed income markets shows that equity indices are largely unchanged in the developed world, whereas most major FX pairs have seen compressing volatility while the dollar index is mostly unchanged from where it started the year. Continue reading…