US NATGAS: AECO Hub Cash Prices in Negative Territory

Two takeaways from Dallas Fed President Logan's speech on central bank balance sheet policy Monday (which didn't include anything on current monetary policy):

• First, the ex-SOMA manager sees "more room to reduce reserves". While acknowledging what was already in the July FOMC meeting minutes about seeing "some temporary pressure around the tax date and quarter-end in September", Logan says she anticipates market participants will use the standing repo facility if necessary in September. "That will allow us to continue gradually bringing reserves to a more efficient level with market rates close to, but perhaps slightly below, interest on reserves on average over time." This sounds like she is not concerned with the ongoing reduction of reserves warranting a shift in Fed policy in the coming months.
• On this front, she again advocates for further development of so-called "ceiling" tools: "while we have made strides in enhancing the effectiveness of the discount window and Standing Repo Facility, it would be worthwhile to consider further steps, such as increasing or removing limits on the SRF’s size or centrally clearing those transactions."
• Second, she suggests that the Fed could shift to overweighting Treasury bills in its portfolio, over time: "it makes sense for the FOMC to hold primarily Treasuries in the long run, as we’ve repeatedly said we intend to do" and suggests that the Fed could in the long run "make its asset purchases proportional to Treasury issuance. In the medium term, overweighting Treasury bills in our purchases could more expeditiously move our current mix of holdings closer to matching the market."
• However, "the FOMC has made no decisions on the long-run composition of its Treasury holdings, and I look forward to continuing to discuss this topic with my colleagues" - as such this doesn't appear to be an imminent prospect.
• This adds another key update to current FOMC views on balance sheet composition. In June Gov Waller (a possible next Fed chair) concluded in a lengthy speech on the topic: "Though the FOMC has not finalized its desired efficient and effective size and composition of the balance sheet, it seems apparent that today's portfolio should be adjusted. And there are obvious steps to take. We are reducing the size of the balance sheet slowly and need to consider shifting it toward more bills."

• Relatively quiet start to the week with London out for annual bank holiday. Treasuries opened weaker - scaling back a fair portion of Friday's post-Chair Powell speech in Jackson Hole that left the door open to a possible rate cut at the next FOMC annc on September 17.
• NEC director Kevin Hassett (potential Fed Chair candidate) tells CNBC that Chair Powell's Jackson Hole speech showed a Fed that is "late" to cut but that Powell's presentation was "sound" and "data driven".
• Treasury futures maintained losses after higher than expected new home sales - but climbed back to mildly weaker levels on the open. After the bell, Se'25 10Y contract trades -6.5 at 111-30 vs. 111-27.5 low. Support around the 50-day EMA, at 111-13. A clear break of this average would expose support at 110-23+, the Aug 1 low.
• The June reading of 652k (seasonally-adjusted, annualized) was better than the 630k Bloomberg consensus, but actually represented a slight fall (-0.6%) on the month due to a sizeable upward revision to June to 656k (from 627k).
• July's building permits were revised up in the final reading to 1,362k (annualized, seasonally-adjusted), vs 1,354k in the initial estimate. That got the data a little closer to the 1,386k consensus estimate going into the initial reading last week, though either way it is a pullback from 1,393k in June (a 2.2% fall vs the 2.8% initially recorded).
• US$ continued to climb in late trade, recovering appr half of Friday's decline. Today's move said to be EUR related after the French confidence vote call earlier. The Bbg $ index: BBDXY +5.94 at 1207.43 vs. 1201.02 low.

SOFR & Treasury options looked mixed on net late Monday, SOFR Calls mixed while Treasury options saw decent buying in Oct 10y calls. Underlying had pared appr half of Friday's post-Powell speech support by late morning - inched off lows during the second half. Projected rate cuts contract slightly vs. early morning (*) levels: Sep'25 at -20.8bp (-21.2bp), Oct'25 at -33.9bp (-34.1bp), Dec'25 at -52.9bp (-53.0bp), Jan'26 at -65.6bp (-65.9bp).

• SOFR Options:
  • -10,000 SFRH6 96.50/97.25 call spds 13.0 over 95.75 puts vs. 96.445/0.38%
  • 3,000 SFRU5 95.75/95.81/95.87 put flys, 0.5 vs. 95.875/0.05%
  • -5,000 SFRM6 96.75/97.00 call spds w/ 96.50/97.00/97.50 call flys, 17.5 total
  • -4,000 SFRZ6 96.25 puts, 20.0 vs. 96.925/0.32%
  • -5,000 SFRZ5 95.75/95.81 put spds, 0.5
  • +2,000 SFRZ5 95.75/95.87/96.00 call flys, 2.0 ref 96.20
  • +4,000 SFRV5 96.93 calls, 1.0 ref 96.20
  • +5,000 SFRV5 96.43/96.50 call spds, 1.0 ref 96.23/0.05%
  • +4,000 0QH6 97.25/97.50/97.75 call trees, .25
  • +4,000 SFRZ5 95.68/95.81/95.87/96.00 2x2x1x1 put condors, 1.25 ref 96.21
  • -16,000 2QU5 97.0 calls, 4.4
  • -1,000 SFRU5 95.87/95.93 straddle strip, 18.5
  • +10,000 SFRU5 96.06/96.31 call spds, 1.0
  • +5,000 SFRU5 95.81/95.93/96.06 2x3x1 put flys, 1.25
  • +2,500 SFRU5 95.87/95.93/96.00/96.03 call condor, 2.5
  • 6,000 SFRU5 95.87 calls 5.75 last
  • +4,000 SFRV5 96.06/96.18 put spds vs. 96.43 calls, 1.0 net ref 96.21.5
  • +7,600 SFRV5 96.25/96.37 call spds, 3.5 ref 96.22
• Treasury Options:
  • 3,000 TYZ5 113/114.5 1x2 call spds ref 111-29.5
  • 3,700 USZ5 107 puts, 25 ref 114-05
  • +25,000 TYV5 113.5 calls, 15 vs. 112-00.5/0.19%
  • +2,500 TYX5 109.5 puts, 11
  • 2,000 USX5 109/112 put spds
  • over -5,700 TYV5 110 puts, 5-6 last
  • over 3,700 TYV5 113 calls, 23 last
  • +1,500 wk5 TY 111/111.5/111.75/112 broken put condors, 4 ref 112-04.5, exp Fri
  • 2,000 FVX5 108/108.25/108.75 put trees, 0.0 ref 109-05