Sectors: Bonds

Japanese Prime Minister Sanae Takaichi’s cabinet has just approved the largest round of extra spending since the Covid pandemic, deploying funds to address the frustrations of voters in a package that may unsettle investors scrutinising the nation’s finances.

Last month’s surprisingly hot inflation print continues to weigh on credit markets who have now given up hope of a Christmas rate cut and are only “hopeful” of a 0.25% easing over the next 12-months, with the futures market pricing in a cut by May as a coin toss.

A faction of Fed policymakers have stepped up warnings that inflation progress could slow or stall, casting doubt over the prospects for another interest-rate cut in December showing the deepening divide at the central bank.

As tech companies gear up to borrow hundreds of billions of dollars to fuel investments in AI, lenders and investors are increasingly looking to protect themselves against it all going wrong. 

Last month’s surprisingly hot inflation print continues to weigh on credit markets who are “hopeful” of a 0.25% over the next 12-months but far from certain. Similar to the Canadian 2s, the local 3s are now anchored to current cash rate.

Last week the Canadian economy added 66,600 jobs in October, marking a second consecutive month of surprise employment gains as tariffs otherwise slow down economic activity. 

Junk bond investors are showing greater caution. In the past month, the US index of CCC-rated bonds has fallen nearly 0.8%, underperforming the broader high-yield market as investors shy away from the riskiest debt.

Following the “hawkish cut” last week markets are now pricing in three rate cuts by next Christmas with the outside chance of a fourth. Our view is that while AI and corporate America remains strong its three at most with potential disappoint for mortgage holders hoping for further rate relief.