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Why fixed income investors should watch for this week’s releases

James Malthus, Macro Analyst

Fixed income recap: Key ideas for the week of December 2 (Part 3 of 3)

(Continued from Part 2)

Watch for rate volatility Friday

Non-farm payrolls is the number to watch this week. Consensus expectations are for 185,000 new jobs, and a beat could be bearish for interest rates. If payrolls show that the economy is still improving, real yields would likely rise, and high yield spreads would also probably tighten. GDP data on Thursday is very backward-looking and unlikely to move the markets much.

With the end of the year approaching, deal flow is likely to dry up in the investment grade and high yield space. Most market participants will take risk off the table into year-end and are thinking forward to potential events in the first quarter. It’s difficult to recommend being long credit right now with the continued uncertainty in the rates markets, but leveraged loans (BKLN) may continue to do well if rising rates remain real rate–driven by improving economic fundamentals.

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