May was choppy, symptomatic of a near end to a rate hiking cycle. The monetary disparities between G10 countries being illuminated as the RBNZ hiked 25bp and indicated a peak, The Fed hiked 25bp and hinted at a pause, the ECB hiked 25bp but stayed firm on at least 2 further hikes, the RBA hiked 25bp but went data dependent, the Norges bank hiked 25 and stayed hawkish, and finally the BoE hiked 25bp reluctantly but due to sticky inflation has another 90bp priced to peak. The different narratives have caused some violent swings in pricing of the short end rates, making it difficult for macro traders to hold risk. Therefore, market liquidity has worsened, and activity has dropped off early for the summer. The US debt ceiling impasse has cleared the first two hurdles and now goes to a senate vote, averting a default on US debt. Inflation data in Europe, both headline and core appear to have softened more than expected, giving an opportunity for the ECB to soften their stance. The new governor of the BoJ hinted at a curve switch on YCC from the 10y to the 5y, waking the JPY rates vol market from its long sleep. We continue to believe in G10 the economic data, notably jobs and wage growth, will soften in H2 as unprecedented hiking cycles have their full impact flow through to the wider economy, tightening credit availability and threatening a recession.
The US 10y closed the month 24.3bps higher and 5s-30s swap was 7.1bps flatter.