Leaders-Laggards

European banks continue to follow the uptrend of developed markets in general and could be looking at a slightly more advantageous environment compared to U.S. banks. TIPS have so far managed to maintain their strength. Again, there’s no real change in the tight relationship between junk bonds and Treasuries, which extends to more than two months.

Cyclicals as a whole took a step back last week, but the reopening narrative should continue to work in the banks’ favor. Emerging markets debt appears to be the fixed income asset class of choice lately. Utilities didn’t perform as well as its defensive counterparts last week, but the sector is trending modestly higher again.

Last week’s inflation numbers managed to improve what was already a strong year-long uptrend in the TIPS market. It looks like the stretch of outperformance for junk bonds relative to Treasuries might be peaking here. Non-China emerging markets have done better recently and we may be seeing some of that spill over here.