New Issues, New Opportunities
Chart of the Week:
Why Is Buffett Still Sitting in Church While the Casino Is Packed?
Berkshire’s annual meeting was hosted for the first time by CEO successor Greg Abel. Key takeaways included: (1) operating profit rose 18% YoY, beating expectations; (2) cash holdings reached US$397.4bn, continuing to exceed the value of its equity portfolio; (3) the new CEO emphasized AI adoption to address cyber threats and warned of deepfake-related cybersecurity risks; and (4) Buffett compared today’s market to “a church with a casino attached,” reflecting surging short-term speculation through zero-day options.
Market Recap 1:
U.S.-Iran Talks Show Progress, Boosting Investor Sentiment and Equities
U.S.-Iran peace negotiations continued to advance, with reports that Washington proposed a new framework aimed at formally ending the conflict. Trump hinted Iran may accept the proposal before his China visit, raising market expectations for a potential peace deal. Iran is still reviewing the proposal. WTI crude fell below US$100/bbl as geopolitical inflation risks gradually eased, improving investor sentiment and lifting major developed-market equities. Markets remain focused on whether corporate earnings can stay resilient.
Market Recap 2:
Oil and Inflation Expectations Ease, While Treasury Yields and the Dollar Weaken
Progress in U.S.-Iran negotiations pushed oil prices lower and helped ease inflation expectations, while U.S. Treasury yields consolidated, with shorter-duration Treasuries outperforming. Given softer housing prices, moderating wage growth, and a cooling labor market, we expect the Fed to keep rates unchanged through year-end, with hikes unlikely. In credit markets, improving risk appetite and fund inflows supported a rebound in investment-grade bonds, while HY and EM debt also delivered solid weekly gains.
What’s Trending:
The Era of Mega Deals Begins; Focus on the Xi-Trump Peace Dividend
Trump and Xi are expected to meet on May 14-15. As a summit between the two leaders, markets are closely watching for constructive outcomes that could support near-term sentiment. However, as the U.S. approaches midterm elections, the Trump administration may revisit trade policies to secure U.S. interests. Investors continue assessing whether summit outcomes can translate into actual policy execution, with uncertainty still elevated.
In Focus 1:
Treasury Yield Volatility May Rise, but Short-Term Carry Remains Attractive
The Fed kept rates unchanged at the April FOMC meeting, in line with expectations. As Powell’s term nears its end, the voting split marked the most hawkish division in 34 years, with markets expecting rates to remain unchanged through year-end. Given soft labor market conditions and limited wage pressure, inflation expectations remain the key focus. Rising oil prices from U.S.-Iran tensions mainly lifted 5Y inflation swaps, suggesting a largely one-off effect. Fed Chair nominee Kevin Warsh emphasized policy independence, reduced forward guidance, and accelerated balance sheet reduction. Lower policy transparency could increase rate volatility, suggesting caution toward long-duration Treasuries while monitoring the impact of higher energy prices on core inflation.
In Focus 2:
Large Corporates Continue Issuing New Bonds, Creating Attractive Lock-In Opportunities
U.S. investment-grade corporate bond issuance reached US$195.6bn in April, the second-highest April level on record after 2020. Non-financial issuance accounted for US$100.6bn, driven largely by A-rated issuers, whose issuance surged 1.8x YoY to US$29.9bn. Strong issuance pushed new-issue concessions to historically elevated levels in March, although premiums eased slightly in April as attractive yields continued drawing investor inflows.
