We have seen this week how U.S. treasury yields have risen again to cross the psychological 3% barrier (+23bps to 3.16%) for the 10-year treasury. to reach the psychological barrier of 3% (+23bps to 3.16%) in the case of the 10-year treasury. On the other hand, the short end of the curve has seen significant increases in magnitude: UST 5y +31bps, UST2 +38bps, reflecting fears of higher interest rates due to inflationary surprises. Even so, we have seen a week with higher relative spreads, we have seen a week of tighter relative spreads across the region as a wholewhere we have seen that credit spreads have done their job in alleviating these base rises.

The May inflation data, which was above expectations for the U.S. economy (1% vs.which was above expectations for the U.S. economy (1% vs. expected 0.7%), does not help to keep the rate market calm either, as this would mean that we need a more proactive Fed in its rate hike plan. this would mean that we need a more proactive FED in its rate hike plan, which would modify the rate structurewhich would change the structure of short-term and long-term interest rates, through fears of a Quantitative Tightening. Quantitative Tightening more aggressive Quantitative Tightening. For now, rate hikes of 50bps for the June, July and September meetings are what the market expects from the FED for the next 3 months. Hikes higher than these should have a negative impact on corporate bond prices, by having to discount the instrument's coupons at a higher rate.

Despite this negative movement for asset class returns, this week we saw the primary issuance market reactivated with the protein sector giant JBS (BBB-/Baa3/BBB-).This week we saw the primary issuance market revived with protein giant JBS (BBB-/Baa3/BBB-), issuing USD debt in three different5-, 10- and 30-year bonds. Combined, the demand for these papers was over $5bn, placing $500mm at 5y with a spread of 225bps, $1.25bn at 10y with a spread of 287.5bps and $750mm at a pricing of 337.5. In our view, these were fair valuations with the issuer's existing curve, with room to achieve capital gains by participating in the issue..

However, nervousness will remain in the coming days, in which bonds will have to reprice this aggressive rise in prime rates, the light at the end of the tunnel is still far from being seen..

 Adolfo Erpel

Money Desk Equipment