Financial Bond on Fire
Chart of the Week:
Gold Rally Stalls — Is the Bull Run Over?
Gold has surged over 50% YTD, driven by uncertainty surrounding Trump’s second term and unpredictable tariff policies that fueled demand for safe-haven assets. However, optimism over U.S.–China trade talks and a Gaza ceasefire has triggered a pullback, with prices briefly falling below USD 4,000/oz this month.
Market Recap 1:
Layoff Surge and Rich Tech Valuations Cool Risk Sentiment, Driving Major Markets Lower
The U.S. government shutdown has lasted over a month, with weekly economic losses estimated at USD 15 billion. Economic data remain mixed — October ISM Manufacturing PMI fell from the prior month and below expectations, though demand showed no further deterioration. Challenger data showed layoffs reaching 105 k, tripling MoM and marking the weakest October in nearly two decades, deepening concerns over labor market softening. While corporate earnings remained solid — with Palantir, AMD, and Qualcomm reporting better-than-expected results and outlooks — stretched tech valuations weighed on sentiment, leading U.S. equities to pull back from highs. Defensive sectors such as consumer staples and healthcare outperformed.
Market Recap 2:
Soft Jobs Data and Risk Aversion Keep Bonds Resilient; Gold Trades Sideways
U.S. ADP employment rose by 42k in October, beating expectations and ending two months of declines. However, Challenger data showed a sharp surge in layoffs, signaling labor market weakness. Markets raised expectations for a Fed rate cut in December from 60% to 68%, supporting Treasuries and high-grade credit, which held up relatively well.
What’s Trending:
Solid S&P 500 Earnings and Steady Manufacturing Demand Support U.S. Equities
As of Nov 6, 84% of S&P 500 companies had reported results, with broadly positive earnings — including Amazon’s strong profit — driving both the Nasdaq and S&P 500 to their seventh consecutive monthly gain. AI leaders continue to ramp up capex to strengthen competitive moats, while even traditionally low-debt giants like Meta and Alphabet have increased borrowing to fund AI investments. The “AI Seven” now account for a record 38% of the S&P 500’s market cap, and investors remain focused on whether these leaders can translate growth spending into tangible revenue gains.
In Focus 1:
Fed Chair Downplays Rate-Cut Expectations; Financial Bonds Offer Better Resilience
As expected, the Fed cut rates by 25 bps in October and announced it will halt balance sheet reduction in December, reinvesting maturing Treasuries and allocating MBS proceeds into Treasury bills. However, Chair Powell noted significant economic uncertainty and said another cut in December is not guaranteed, a slightly hawkish stance that pushed market expectations for a December rate cut down to 68%. Given uncertainty around the Fed’s easing path, a potential pause could drive yields higher. In such a scenario, financial bonds — with attractive yields, shorter duration, and higher yield per duration — are better positioned to withstand rate volatility.
In Focus 2:
Rising U.S. NPL Risks Favor Large Financial Bonds with Stable Credit Profiles
The Fed’s latest Senior Loan Officer Opinion Survey (SLOOS) showed a mild pickup in large corporate loan demand, while small business demand remained steady. Borrowing was mainly driven by reduced cash buffers and precautionary liquidity needs. The survey also indicated slightly tighter lending standards for corporate loans, while standards for commercial real estate, residential mortgages, and auto loans were unchanged, and consumer credit — particularly credit cards — tightened modestly. Delinquency rates edged higher, with large banks steady QoQ but smaller institutions showing an uptick. Given rising bad-loan risks, positioning in large-bank bonds helps mitigate volatility.
