Central Banks continue to do their work to support the system and the Fed, ECB and BoE are now all actively engaged in buying corporate credit.

The Federal Reserve has expanded its $250 billion Secondary Market Corporate Credit Facility from providing liquidity to exchange traded structures to open purchases of corporate bonds based on their own index of the full >$9 trillion universe. Bonds must have been IG on 22 March and sub 5 years. Jay Powell sees signs of stabilization and a ‘modest rebound’, he can certainly point to a huge beat in May’s job numbers and a significant jump in retail sales. He quite rightly pointed out to the Senate Committee that a premature withdrawal of support could jeopardise this. The Trump team are ‘working on a $1 trillion Infrastructure spending plan’ but there are predictably precious few actual details available.

The ECB upped the size of their PEPP to €1.35 trillion and, together with the CSPP, they have averaged buying around €10 billion of credit a month in both primary and secondary markets, taking 15% of every new eligible deal. The extra quantitative easing was well received and, together with Chancellor Merkel’s €130 billion stimulus package receiving coalition approval, the Eurozone’s largest economy’s recovery appears to be under way.

The OECD forecast that the UK was likely to be the hardest of developed economies and we have had some, not unexpected, dire data, such as GDP off by 25%. However, we are seeing signs of life too and recent Service and Manufacturing PMI’s were much better than expected. Conflicting messages emanate from different members of the MPC. Rates markets were possibly too keen to embrace the idea that they were likely to explore negative rates and the front end of the Gilt curve remains, just, negative out to 5 years. Recent rhetoric has, however, tried to defuse this and our Governor has even commented on balance sheet reduction before it has been run up – a questionable tactic. He also pointed out that the UK government would have struggled to fund itself in March if it had not been for QE and the Bank. I think we know this but I am not sure it should be in a central bankers playbook to voice it. The MPC increased their QE program by £100 billion.

Issuance continued its record breaking run and over 1 trillion has been printed in both US dollars and in euros, although not stopping spreads from hovering near post-crisis tights. BP came with the largest hybrid issue ever.

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