Daily Agenda: Investors Focus on Fed, Brexit Risks

German ten-year Bund yields fell below zero for the first time in early trading today as uncertainty over a potential exit from the European Union by the U.K. sparked a flight-to-safety rally. Pound sterling retreated versus other major currencies. The moves followed more polls showing a significant lead for U.K. voters seeking departure from the EU on the June 23 referendum. While European market narratives remain fixed on the U.K., in the U.S., investors’ main focus will be on the Federal Open Market Committee meeting, which kicks off today. Although Federal Reserve Chair Janet Yellen signaled that a rate hike is unlikely in comments last week, when the central bank will act remains a topic of debate as the pace of improvement in the U.S. labor market appears to slow.

Supreme Court rules against Puerto Rico restructuring law. Yesterday the U.S. Supreme Court rejected a law introduced by Puerto Rico’s legislature in 2014 that was intended to allow agencies of the territory to seek court protection from debtors. This is a victory for bondholders, because it will subject the Territory’s debt to a federal oversight board currently being created under legislation before the U.S. Senate. Puerto Rico faces roughly $2 billion in payments on July 1 that Governor Alejandro Garcia Padilla has said will be impossible to pay in full.

IMF warns on China credit cycle. Yesterday International Monetary Fund Deputy Managing Director David Lipton issued a press statement echoing earlier public comments on dangers posed to the Chinese economy by swelling private-sector debt. According to Lipton, the near-term outlook for growth is positive due to stimulus measures initiated by the central government and the People’s Bank of China. But reining in excessive debt levels and restructuring zombie companies will be necessary to sustain that growth in coming years.

Abu Dhabi wealth fund pursues claim against 1MDB. International Petroleum Investment Co., an Abu Dhabi sovereign wealth fund, on Tuesday filed to seek arbitration against 1Malaysia Development, Malayasia’s scandal-wracked sovereign wealth fund, in London. The claim relates to a $6.5 billion bond issued by 1MDB that went into default in April. An investigation by the Malaysian government has identified more than $4 billion in potentially fraudulent transactions executed by 1MDB, and a number of governments worldwide have independently launched probes.

Goldman Sachs Group accused of bribery. The Libyan Investment Authority revealed salacious details in a London court complaint that alleged Goldman Sachs bankers had used inappropriate gifts and travel to convince Libyan officials to commit to inappropriate investments, which then sharply declined in value during the credit crisis. Total alleged losses to the Libyan Investment Authority exceeded $1 billion, according to the complaint.

IAE says oil market has found balance. In a monthly report released today, analysts for the International Energy Administration concluded that rebounding demand in primary emerging economies combined with supply disruptions in Africa and North America have brought oil markets close to equilibrium. According to the report, supplies should increase as capacity comes back online among producers, including Libya and Nigeria. August delivery contracts for Brent crude contracted by more than 1.5 percent in early trading in London.