Multi-Asset Weekly Newsletter

BIG BEAUTIFUL BILL CLEARING THE HOUSE SENDS JITTERS THROUGH BOND, EQUITY MARKETS 

Trump's tax bill cleared the House of Representatives through the most slender of margins. The bill now advances to the Senate, where it needs to get a simple majority i.e., 51 votes. There are currently 53 Republicans in the Senate. The administration has set a deadline of the 4th of July to pass the bill. If the Senate makes changes, the bill will again go back to the House. The passage of the bill made the bond markets nervous as it is certain to widen US budget deficits and increase the US debt-to-GDP ratio. The tepid response to the 20y bond auction sent the yields at the longer end soaring. It also dented sentiment in the equity markets. Market has further trimmed expectations of a Fed cut. It now expects only 1.8 cuts by the end of 2025. 

NIFTY V/S GLOBAL MARKETS

Equities globally had a tepid week. Nervousness in bond markets spilled over to equities

FIXED INCOME

The US yield curve steepened this week. Yield on the US 2y rose 2bps. Yield on the US 10y rose 6bps to 4.51%, and that on 30y rose 13bps. 10y yields across Eurozone and the UK changed by anywhere between -3 to 2 bps. 30y Japan government bond Yields are at record highs. It had hit 3.18% intraweek but ended at 3.04%. Higher yields on JGBs are also likely to see Japanese investors shunning US treasuries. This is likely to exert further pressure on US Yields to the upside, especiallythe  longer end. Yield on the old 10y benchmark ended 2bps lower at 6.25%, 1y OIS fell 8bps to 5.54% while 5y OIS ended almost flat at 5.63%. FPIs have pulled out USD 1.5bn from domestic debt in May so far. 

FOREIGN EXCHANGE:

The dollar weakened against all G10 currencies this week. USD/INR had spiked to over 86 on Thursday but reversed the following day on broad Dollar weakness. RBI governor said that the RBI does not target a specific level for the Rupee and intervenes to curb volatility. He added that Rupee's performance should he seen in light of the performance of currencies of other trade partners. With the Rupee underperforming, the Cross/INR soared this week. Forwards came off further as US Rates rose. 1y forward yield is now barely 2.03%, and 5y is at 2.61%. 3m ATMF implied volatility stands at 4.95%. 

COMMODITIES:

Typical risk-off moves were seen across commodities. Brent ended the week 1% lower at USD 64.8 per barrel. Previous metals surged on a sell-off in long-end US treasuries. Gold and Silver surged 4.8% and 3.7% respectively to USD 3357 and USD 33.5 per ounce.  Base metals were mixed with LME Copper gaining 1.7% and Aluminum dropping 0.7%. Dalian Iron ore fell 0.2%.