So much of the last 6 months has seen flows reverse direction from the prior month, April was no exception. The fear of financial contagion in March was replaced by calm and consistent Central Bank messaging from the Fed, ECB and BoE regarding financial stability and inflation focus. This led to markets backing up yields and reversing some of the initial cuts priced into Q3 and Q4. This was all achieved relatively smoothly, even with another regional bank, First Republic, being absorbed into the JPM deposit monolith. The Fed rate hiking cycle is drawing to a sunset, focus now increases even more on economic data, notably wages and jobs. With JOLTS dropping and Michigan 1y inflation expectations lower, there is hope that an early May hike will be the last.
Meanwhile lending standards are continuing to tighten with loan demand fading along with expectations of a smooth debt ceiling cap extension. A delay to a resolution on this partisan flash point is increasingly likely, with the 1yr US CDS spread widening from 90bp to 175bp during April. Such a technical default would seriously undermine the remaining fragile confidence in the market after the recent banking failures. The portfolio continues to absorb the rates volatility and consolidate performance year to date.
Over the month the RBNZ and Riksbank hiked 50bp, while the BoC, BoJ and RBA were unchanged.
The US 10y closed the month 6.7bps lower and 5s-30s swap was 30.7bps flatter.