Situation Room: Higher Inflation Is Good for Spreads

Higher than expected core CPI at +0.4% MoM has pushed 10yr Treasury yields to their highest level since July 2025 and led markets to price 19bps of Fed hikes. Despite this, the IG credit market technicals remain supportive due to stable volatility and expected slowing of bond supply in H2.

Key Takeaways

• 1.Core CPI for April exceeded expectations at +0.4% MoM, leading markets to price in 19bps of Fed hikes over the next 12 months.
• 2.Inflation driven by supply shocks (e.g., Strait of Hormuz closure) rather than an overheating economy allows for a benign Fed policy, supporting Investment Grade (IG) technicals.
• 3.IG corporate bond issuance remains active with $15.5bn across 12 deals on May 12, though supply volumes are expected to slow in the second half of the year.

Table of Contents

• Daily supply snapshot
• Daily dealer inventories update
• Daily HG fund flows
• Daily foreign demand tracker

Document Preview

Page 1 of 5

Subscribe for full accessStart Free Trial