Tweet of the week.

Illustration: Midjourney | Financial Times

Analysts spot a red flag not seen since 2007 coming for the corporate bond market

Last month’s banking drama means a technical tidal wave may be coming for the biggest slice of the $10 trillion market for corporate bonds. That’s according to TD Securities, where analysts are predicting that banks’ collective higher cost of funding will curb appetite for higher-quality credit and eventually force a spike in risk premiums. (Bloomberg Markets | Apr 19)

Fed aftermath.

US equity futures and European stocks rose as investors weighed the path of Fed interest-rate increases for the rest of 2023. Minutes of the Fed’s March meeting signaled officials appear on track to extend their run of hikes when they meet next month, while staff advisers forecast a “mild recession” later this year. Economists see the most likely outcome as a quarter-point increase in May, followed by an extended pause. But the language in the minutes, coupled with some officials’ comments and a still-uncertain outlook for the impact of credit tightening on the economy, point to a rate path that m ay not be fully settled.

Skeleton crew.

This week brings a relatively rare economic constellation: March’s US payrolls print lands on a public holiday, creating a small tear in the time-space continuum. Treasuries will trade just half a day, while the US equity market is shut.

The non-farm payrolls print completes a trifecta of labor market data this week, and the stakes are high. Job openings fell below 10 million for the first time since 2021, while just 145,000 private payrolls were added last month, according to the ADP Research Institute — below all estimates in a Bloomberg survey of economists.

The NFP figures take on an added importance given Friday’s print marks a full year of payrolls reports since the Federal Reserve’s liftoff hike last March. While signs of tightening have cropped up across the economy — for instance, in the banking system and the housing market — the American workforce has been remarkably resilient.

Friday’s numbers aren’t expected to show any signs of a slowdown. Consensus says that the US added 235,000 jobs in March, with the unemployment rate expected to stay put at a historically low 3.5%.

The fun part will be watching how incredibly thin markets digest the data. Liquidity is already an issue in the Treasury market — now add holiday trading conditions.