HYG Spreads Widen: Kroll default 3-yr high, KRE risk, decoded

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Federal Reserve policymakers are expected to hold interest rates steady on Wednesday, posing an early test for new chairman Kevin Warsh as rising inflation erodes households’ purchasing power and President Donald Trump continues to press for lower borrowing costs.   Robert Kaplan, Vice Chairman at Goldman Sachs, discusses what to expect from Kevin Warsh's first meeting as Fed chair and his outlook for markets after the FOMC decision. (Source: Bloomberg)

Robert Kaplan, Goldman Sachs vice chair and former Federal Reserve Bank of Dallas president, says the US is in the midst of an "historic" capital spending boom driven by infrastructure for AI and computing power. He speaks during an interview on "Bloomberg Open Interest." (Source: Bloomberg)

Prior was +0.5% Details: Ex-autos +0.8% vs 0.5% expected Prior ex autos +0.7% Ex autos and gas +0.5 vs +0.5% prior Control group +0.7% vs +0.4% expected Prior control +0.5% Retail sales y/y vs +4.87% prior Bank of America forecast a beat on sales based on cardholder data and that's exactly what happened. US retail sales measure the total dollar value of receipts at retail and food-services establishments, compiled by the Census Bureau's Advance Monthly Retail Trade Survey. It's the broadest read on goods consumption, capturing autos, gas, building materials, e-commerce, and the one service line in the report — bars and restaurants. The critical caveat: the headline is nominal, not adjusted for inflation, so price moves and volume moves are indistinguishable in the top-line number. That distinction did the heavy lifting through April. Headline sales rose 0.5% on the month, in line with consensus, but decelerated from March's 1.6% surge. Strip out the optics and the picture softens: gasoline prices jumped sharply as the Iran conflict kept crude elevated, meaning much of the gain was pump inflation rather than real demand. In real terms, retail sales actually fell 0.2% m/m. The control group — which excludes gas, autos, and building materials, and feeds into GDP — is the cleaner signal. It rose 0.5%, with core sales up 5.7% year-on-year, pointing to steady underlying demand even as the headline flattered itself. This article was written by Adam Button at investinglive.com.

US retail sales are due at the bottom of the hour in an important check on the consumer. The consensus is that sales rose 0.5% in May, with the ex-autos number matching that. For the market, the most-important number is the control group, which excludes autos, gasoline and building materials. It's expected up a healthy 0.4% m/m but not that retail sales numbers aren't adjusted for inflation. On a year-over-year basis, sales were up 4.87% in April, which just barely exceeded inflation. The market is unlikely to make a big moved based on retail sales for two reasons: 1) Warsh is coming up later. The 2 pm ET FOMC decision and press conference 30 minutes later are big events and most market participants will be reluctant to chase any miss. 2) It's a bit stale. Gasoline has been eating up a larger chunk of US wallets due to the war but crude is back to $76 and that's going to be a gamechanger for June data and consumer confidence, if it holds. At the moment, USD/JPY is down 15 pips to 160.30 and is a place to watch today due to the Fed decision and the chance of intervention. Notably, Bank of America -- based on its card data -- is forecasting sales up 0.8% with the control group up 0.7%. This article was written by Adam Button at investinglive.com.

European equities offer value opportunities following the recent decline in oil prices, particularly consumer-facing stocks and energy-sensitive cyclicals, according to JPMorgan Chase & Co.’s Hugh Gimber.

High yield 4.927% WI level at the time of the auction 4.937% Tail -1.0 basis points Bid to cover 2.75X Directs (domestic demand) 19.9% Indirects (international demand) 73.2% Dealers 18.5% Auction Grade The 20 year issue is not a major interest for investors. High Yield The high yield is the highest yield accepted at the auction and becomes the yield awarded to all successful bidders. Higher-than-expected yield = weaker demand. Lower-than-expected yield = stronger demand. Tail (6 auction average -0.2 bps) The tail measures the difference between the auction's high yield and the yield where the bond was trading just before the auction (the "when-issued" yield). Positive tail (high yield above WI yield) = weaker auction. Negative tail or stop-through (high yield below WI yield) = stronger auction. Example: WI yield: 4.50% Auction high yield: 4.53% Tail: +3 basis points (weak) Bid-to-Cover Ratio (6 auction average 2.41X) The bid-to-cover ratio measures total bids received relative to the amount offered. Formula:Bid-to-Cover = Total Bids ÷ Amount Offered Example: Treasury sells $22 billion Receives $55 billion in bids Bid-to-cover = 2.50 Higher ratios generally indicate stronger demand. Direct Bidders (%) (6 auction average 22.6%) Direct bidders submit bids directly to the Treasury. Typically includes: Domestic money managers Pension funds Mutual funds Some hedge funds A higher direct percentage often suggests strong domestic investor interest. Indirect Bidders (%) (6 auction average 66.7%) Indirect bidders are primarily: Foreign central banks Sovereign wealth funds Foreign institutions This is often the most closely watched category. A high indirect take is usually viewed as a positive sign because it indicates strong foreign demand for U.S. debt. Dealers (%) (6 auction average 10.7%) Primary dealers are required to participate and buy any securities not taken by others. Examples include: JPMorgan Chase Goldman Sachs Bank of America A high dealer allocat