Uncertainty Remains Beneath the Calm Surface

Weekly Comment | Fixed Income

Risky assets stabilized with more attention on the EU energy security; global value chain disruption re-emerged as COVID cases surge in China, leading to factory shutdowns; we remain cautious on the long-term stagflation scenario while short-term “Technicals” and valuations may provide some support to credit to play a strong seasonality.

Powell took a more hawkish stance over the week and signalled the likelihood of 50bps hike at the next meeting; futures now price in 7 rate hikes this year; benchmark products printed another week of stark losses.

Primary market activities picked up, elevated cash reserves on corporate balance sheets keep credit fundamentals in check despite margin compression due to commodity prices; credit spread movements show that rotation-to-quality continues.

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