The year to date has seen a significant steepening of risk free curves as hopes remain pinned on impressive vaccine rollouts leading to a reopening of previously closed sectors of developed economies and a return to some semblance of normality.

US Treasuries in particular have seen strong moves with the 10-year yield rising 40bp and the long bond doubling to over 2% from its COVID-19 low, both now back to pre-pandemic levels. The new US President appears to be honouring his many pledges but the wrangling over the size and implementation of stimulus packages goes on.

The EU has not put on an impressive vaccine performance. Combine this with the last MPC meeting and sterling has strengthened considerably against the euro (and the USD). Governor Bailey was at pains to reiterate that whilst negative rates were amongst several tools in his box, they are one that he was unlikely to use. The Short Sterling strip aggressively moved back below par and the Gilt curve steepened markedly with the 5y/30yr spread breaking out of its H2 2020 range moving to over 100bp, causing long duration assets some pain.

Sterling primary market issuance picked up a little pace and reflects prevailing, and now mainstream, themes. Of the 16 or so new issues this year, the majority have had ESG credentials. Whitbread issued a green dual tranche, which attracted substantial books. All new issuance has seen good support and has performed well in the secondary market. On a slightly different note, Asda’s new owners came to market with a high yield bond to fund their purchase from Walmart. This was the biggest ever issue into sterling but was mostly pre-placed resulting in much ire from would-be investors.

As support for risk assets remains solid and indexes attain new highs (fuelled by a strong earnings season), there are as many outlandish price targets and forecasts as ever. Liquidity inspired moves (and amusing stock market situations) abound and, along with commodity prices trending up, have added to inflationary fears - US 10-year inflation expectations reaching an 8-year high - although recent inflation numbers have not shown any uptick. Credit spreads remain steady and anchored within the tight range they have been in for the last 3 months.

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