We finally saw buying in Fixed Income!!

This weeks update is jointly written with our Head of Data Transformation and Analytics Zhenyi Zhang

Except for a short period of 2021, Fixed Income has largely been on a one-way selling street since July 2020. Interestingly, whilst the US Fed is still trying to hit the brakes on rising inflation via higher rates, we are seeing signs of buying emerge in Fixed Income over the recent weeks.

The chart below shows the 6 week moving average of net buying and selling in Fixed Income securities and Bonds

As we compare the Fixed Income chart above with the Interest Rate chart below, it can be observed that trends are uncannily similar. Investors were able to call the rise in interest rates accurately pretty much to the day — Fixed Income was being bought in the summer of 2021 just as interest rate fell briefly in the same period, and now buys are being logged again while we see a slowdown in the rise of treasury rates.

Over the past week, treasury yield curve inversion narrowed and the probability of a 100 basis points increase in rates dropped to just 19%, both signaling some optimism in the Fixed Income Market — would investors be right yet again?

Equity Volumes go hush!

In the Equity Chart below, we see quite the opposite. Investors were largely buying over the past 2 years (essentially sale proceeds of fixed income were deployed into equities — the famous cycle trade). In the recent weeks, however, the market has gone quiet on Equities as trade volumes diminish.

It may be still too early to tell if the equity market is heading for a rebound. Apart from the Fed’s meeting on July 26–27, other key events such as the week of earnings announcements from a broad swath of companies are expected to steer stocks.

In the meantime, investors seem to be employing the wait-and-watch strategy in Equities

Conclusion (tl;dr;)

  • Investors have been buying Fixed Income over the recent weeks as interest rate hike slows down
  • Equity goes quiet as trade volume diminish, as investors appear to be waiting on key events to drive the market

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