Credit Market Daily #54


Good Morning!

Be careful what you wish for – headlines abound this morning on China’s relaxation of their Covid measures. This was held up as the reason for a couple of early morning rallies of late.

But, it may not be as bullish as initially advertised, now people have had time to have a think.

It will be good for Global growth, likely to be inflationary but a harsh winter to get through and a health system that may not be able to cope.

Given recent protests it may prove quite a difficult path for China’s politicians to navigate. E

Essentially, China has 3.4 (!) intensive care beds per 100,000 and will be trying to convince its inhabitants that Omicron is something that can be tolerated, as well as an under vaxxed and elderly population.

So – overall good news – but like everything COVID related its complicated and isn’t necessarily a simple flick of the switch to get China’s economy up and running – it accounted for 18.56% of world GDP in 2021.

My reads this morning on the topic from the FT, Wall Street Journal, Project Syndicate and The Economist.

Aside from China headlines, yield curve inversion is also grabbing headlines. We flagged this yesterday with Powell’s preferred yield curve and include a snapshot of the US 2s10s below.

We have featured ING’s 2023 rate outlook in “what we are watching” below – it is well worth downloading as it covers what happens next for bonds.

After inversion they expect the curve to steepen and for the 10 year yields across USD, EUR and GBP to head lower. The timings of these moves and the drivers behind their views are useful when thinking about when to get long duration in 2023.

Markets will likely remain in a holding pattern ahead of Central banks and CPI next week with a speech from Legarde today a potential trigger for volatility in Europe.


High Yield

The EUR, GBP and USD High yield indices moves: -0.14bps (Z+177), -5bps (Z+201), -1bps (Z+133) respectively.

XOVER opened 1.6bps tighter at 465.35, and is 0.4 bps tighter on Tuesday’s close.

Leaders and Laggers

Investment Grade

The EUR, GBP and USD Investment Grade indices were +6 bps (Z+178), + 10 bps (Z+201), +81 bps (Z+133) respectively.

The Itraxx Main was tighter this morning by 0.2 bps at 91.43 bps and remains cheap to the Senior Financials index.


Rates are generally opening wider, with the UK 10 YR +1bp, German 10 YR +1.6bps, France +1.9bps.

The US 10 YR has widened by 3.6pts, rates volatility remains high with the move index at 131 (Covid wides c.160+). The US 2-10YR is extremely inverted at -82.4, for context the 2yr10yr curve has not been this inverted since 1981:


European equities are slightly weaker, with the FTSE250 -0.18%, and the Stoxx 600 -0.12%.

The S&P 500 closed largely unch. (down 0.19%) yesterday. 

Futures on the S&P 500 are slightly green +0.09%

Today’s Events

Today’s Reporting
Constellation Auto

What Has Caught Our Eye

Nouriel Roubini – sees no soft landing

ING rates outlook 2023

This is well worth a read. ING cover their outlook for US, EUR and GBP rates.

They lay out what to expect next in terms of transitioning from inverted yield curves, pauses in hikes, central bank pivoting, curve steepening and Quantitative tightening.


High Yield

Investment Grade



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