Credit market investors are watching for a Federal Reserve pivot

CREDIT market watchers are looking ahead to this week’s Federal Open Market Committee (FOMC) meeting, where Federal Reserve Chair Jerome Powell is expected to announce a 50 basis-point hike. 

Such a move would mark a divergence from a series of 75 basis-point hikes this year to help tame inflation. US corporate credit primary markets are mostly stalled. High-grade syndicates desks anticipate weekly sales won’t pass US$5 billion, and it’s very possible that there could be no issuance at all.

Things are just as sleepy in leveraged finance markets. The junk-bond pipeline cleared after equipment manufacturer Chart Industries sold US$1.97 billion of junk bonds. There are no bank meetings scheduled in the US leveraged loan market.  

The market has been on high alert for signs of a Fed pivot to lower interest rate hikes. Sentiment was dampened a bit after Labor Department data showed last Friday (Dec 9) that a measure of inflation rose more than expected last month. Investors are looking ahead to next year, anticipating a pause in rate hikes. But with inflation still too high and a strong labour market, it may be difficult to get a clearer picture on the Fed’s path forward until 2023. 

The latest batch of consumer price index data will also be released on Tuesday, adding a fresh data point for the Fed to take into consideration.

“Acute attention will be placed on the FOMC for any signals of future rate hike and terminal rate expectations given mixed data recently,” Barclays strategists Bradley Rogoff and Dominique Toublan wrote in a note last Friday. The bank said a 50 basis-point hike this week is “all but certain”. BLOOMBERG