It is hard to have complete confidence in President Biden and his advisers at this time, Putin seems to be playing a rather more effective game, if that is what it is. Movements in US stock indices reflect some of these worries but also some tempering of exuberance in the likes of non-profitable tech. The prospective withdrawal of liquidity, through whatever measures effectively produce QT, means that money is becoming more expensive. Moves in US Treasuries mean that the yield on the 2-year note is nearly 8 times what it was 5 months ago. Predictions for the number of rate hikes this year become more and more bullish and the latest from J P Morgan is for 9 moves.

The ECB has had to modify its language (i.e. not ruling out a late 2022 hike) to entertain the thought of their own withdrawal of excessive liquidity and negative rate policy, the Bund curve is now only negative out to 6 years. Recent economic numbers including very strong PMI’s confirm that omicron was just a blip and the ECB has possibly moved into pole position for Central Bank most behind the curve.

The Bank of England has to cope with CPI hitting 5.5% and their recent meeting did deliver another hike to 0.50%. MPC voting showed a sharp turnaround in favour of the hawks and they too have to take note of a services PMI in the 60’s. The rise in Gilt yields has gone a fair way in discounting near term hikes.

Credit spreads widened to put us back to the top end of the relatively tight range seen during 2021. In specific sectors, subordinated financials felt some heat dragging seniors wider with them, creating opportunities. Market volatility meant that there was limited issuance in primary although we saw some, the usual early year SSA and covered issuance. A few corporates and T2 financials printed too, with more generous new issue premiums, although most are now trading wider in secondary markets.

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