Euro Investment-Grade Bonds Thrive Despite Tariff Worries
0800 GMT – Since the beginning of 2025, euro-denominated investment-grade service-sector bonds have outperformed their broader peer group due to U.S. trade tariffs affecting solely goods rather than services, according to a statement from Mathieu Le Cann at CreditSights. These specific European Investment-Grade (IG) service-sector bonds are trading seven basis points lower compared to the total ICE BofA Euro IG Index, which monitors all euro-based investment-grade debt. "Without direct effects from tariffs on most service firms, this industry proved particularly robust throughout times when credit spreads were highly volatile," as stated by CreditSights. miriam.mukuru@wsj.com )
U.S. Treasury Market Disruptions Believed Mostly Resolved
0559 GMT - According to Jonas Goltermann from Capital Economics in a recent note, the disruptions in the U.S. Treasury market seem mostly resolved after the volatility triggered by President Trump’s tariff declarations on April 2. Long-term U.S. Treasury yields have reversed most of their significant and unexpected climb since early April, as mentioned by the deputy chief markets economist. "Generally speaking, conditions have clearly stabilized compared to right after April 2," he notes. However, he points out that the difference between short-term and long-term interest rates continues to be notably broader than before. As reported by LSEG, the yield for two-year Treasuries stands steady at 3.686%, whereas the ten-year Treasuries remain unchanged at 4.205%. emese.bartha@wsj.com )
U.S. Treasury Securities Expected to Price in Potential Fed Interest Rate Reduction Shortly
0551 GMT - According to U.S. Bank Asset Management’s Bill Merz in a statement, bond yields indicate the possibility of the Federal Reserve lowering interest rates either in June or July. "The exact timeline for these reductions hinges on trade policies; officials will assess how tariffs affect their goals regarding inflation control and complete job occupancy," states the leader of capital markets research. While money market analysts disagree over whether a rate reduction might happen in June, they generally anticipate such an action occurring in July, as per LSEG. emese.bartha@wsj.com )
Bond market valuations have returned to more typical levels.
05:47 GMT - Bond valuations throughout the market have reverted to more typical levels, with numerous bond types now providing considerable additional yields compared to Treasuries, notes Bill Merz from U.S. Bank Asset Management in his report. Municipals offer yields between 2.8% and 5.6% higher than Treasurys when adjusted for taxes, states the lead researcher of capital markets. He adds that corporates provide an edge ranging from 1.0% to 3.8% above Treasurys based on their respective ratings. "While riskier munis and corporates might see volatile pricing, they can produce notable income gains over time," explains Merz. Structured credits like non-agency mortgage-backed securities and CLOs boast yields exceeding those of Treasurys by more than 1.0%, alongside robust safeguards against potential credit defaults, he mentions further. As per LSEG data, the 10-year Treasury rate remains steady at 4.205%. emese.bartha@wsj.com )
A Stronger Yen and Tariff Uncertainties Might Prompt the BOJ to Maintain Its Position This Week
0440 GMT - According to Vincent Chung at T. Rowe Price in his report, the Bank of Japan is anticipated to maintain current interest rates during this week’s gathering due to persistent uncertainties regarding economic expansion. He suggests that both the strengthening Japanese Yen and worries over possible tariff impacts could prompt the BOJ to postpone additional rate increases. As the co-manager for diversified income bond strategies points out, these tariff-related ambiguities introduce an extra layer of financial risk to American investments. It would thus be crucial for investors to stay alert to prospective trade agreements aimed at reducing such risks. "Should instability within the U.S. Treasury markets diminish, the substantial demand-driven investment stance favoring the yen as a safe-haven currency might limit the yen's short-term upward movement," Chung concludes. monica.gupta@wsj.com )
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