Cease-fire strained
May 28, 2026
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–Yields edged slightly lower yesterday with 10s down 1.4 bps to 4.479%. Front end sofr contracts were slightly bid, with SFRH7 leading, +2.5 to 9608.0 (3.92 vs current EFFR of 3.62, so a hike is priced). With CLN6 settling -5.21 at 88.68, and SPX at new all-time high, 10y breakeven has fallen back from recent highs at 252, to 242 yesterday.
–Cease-fire in Iran appears to have ended or at least be under heavy strain with new attacks on targets near Hormuz. CLN6 seeing a modest bounce back above 90/bbl.
–Today’s news includes Pers Spending and Consumption, and PCE prices. PCE price mom expected 0.5 from 0.7, yoy 3.8 from 3.5%. Core 0.3 from 0.3 with yoy 3.3 from 3.2. Job Claims at 211k (as always). Cap Goods nondef ExAir has been strong, expected 0.4 from 3.4. Not much change expected in 2nd estimate of Q1 GDP. New Home Sales expected 660k from 682k…pretty much been between 610k and 720k for past 3 years.
–Interesting story on BBG: ‘Ellisons’ $49b Ask is Acid Test for Markets’
AI summary: Bankers preparing jumbo debt package to support $110b acquisition of Warner Bros….merged business will start life extremely high leverage, with net debt being 6.5x this year’s forecast.
I am a bit [a lot] out of my depth on this, but I looked at Debt to Common Equity ratios for MSFT, 32.7%, AMZN 41.3% and ORCL 532%. I am not so interested in Warner, but after the OpenAI/ORCL announcement in Sept that took the stock (ORCL) to 325, it’s now 191, having bounced from an April low 138. Attached chart shows relative (not absolute) changes in 5y CDS since the start of the year. [I own some ORCL puts]
https://blinks.bloomberg.com/news/stories/TFQB45RKV2TH
