JGBS: Bull-Flattener, BoJ Ueda: Will Adjust Policy As Economy Improves
May-27 03:18
At the Tokyo lunch break, JGB futures are slightly stronger, +8 compared to the settlement levels, after giving up overnight gains.
- “Japan lost its position as the world's largest creditor nation for the first time in 34 years, despite posting a record amount of overseas assets. Germany's net external assets totaled ¥569.7 trillion, surpassing Japan's ¥533.05 trillion, due to its substantial current account surplus and strong trade performance.” (per BBG)
- ICYMI, BoJ Governor Ueda made remarks at an event in Tokyo earlier. The comments appeared to cover a lot of familiar ground since the last BoJ policy update. Ueda reiterated the driver of the recent downside forecast revisions for both growth and inflation (trade uncertainties). Still, the central bank will adjust the degree of monetary accommodation if the economy improves as expected.
- Cash US tsys are 1-3bps richer, with a flattening bias, in today's Asia-Pac session after yesterday's holiday.
- Cash JGBs are flat to 10bps richer across benchmarks, with the curve flatter. The benchmark 40-year yield is 9.5bps lower at 3.462% ahead of tomorrow's supply.
- The upcoming 40-year JGB auction will be closely watched following a lacklustre 20-year sale last week - a sign of the caution that still runs deep among long-end investors.
- Swaps have twist-flattened, with rates 2bps higher to 4bps lower. Swap spreads are wider.
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US TSYS: Extraordinary Measures And Cash Look Sufficient To Head Off X-Date
Apr-25 20:32
Treasury has about $164B in "extraordinary measures" available as of April 23 to avoid hitting the debt limit, per its regular report out Friday. That's out of a maximum total of $375B (they have used $211B).
- With Treasury cash looking healthy (around $600B), that's a fair amount of dry powder to get through the summer months to wait out the debt limit impasse. Tax receipts have looked strong with tariff revenues also starting to boost cash flows, further reducing the near-term urgency to adjust bond issuance.
- This has also helped push back analyst “x-date” expectations to later in the summer/September. We expect to hear from Treasury about its own x-date assumptions next week.
US TSYS: Treasury Market Trading Stayed Orderly In April: Fed Report
Apr-25 20:25
Liquidity across financial markets including the Treasury market deteriorated after President Trump's April 2 reciprocal tariffs announcement but market functioning was generally orderly, according to the Federal Reserve's semiannual report on financial stability, released Friday. (PDF link is here)
- Treasury market liquidity has been poor for years and yields were particularly volatile in early April, contributing to a deterioration in market liquidity, the Fed said.
- Nevertheless "trading remained orderly, and markets continued to function without serious disruption," according to the report, which looked at information available as of April 11.
FED: Ex-Gov Warsh: Fed Has Failed To Satisfy Price Stability Remit
Apr-25 20:22
From our Washington Policy Team - Some fairly sharp words today from ex-Fed Governor Warsh on the central bank (who for what it's worth is seen by betting markets as by far the frontrunner for the next Fed Chair):
- The best way for the Federal Reserve to safeguard its independence is for policymakers to avoid expanding the institution's role over time, including wading into policy areas that are outside its core mission, former Fed Governor Kevin Warsh, a leading contender to replace Jerome Powell as chair next year, said Friday.
- "I strongly believe in the operational independence of monetary policy as a wise political economy decision. And I believe that Fed independence is chiefly up to the Fed," Warsh said in a speech at a Group of Thirty event on the sidelines of the IMF meetings. "Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability. It has also contributed to an explosion of federal spending." His speech made no mention of Trump's tariffs or the appropriate monetary policy to deal with them.
- He said the ideas of data dependence and forward guidance widely adopted by Fed officials are not especially useful and might even be counterproductive.
"We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts -- subject to significant, subsequent revision -- is evidence of false precision and analytic complacency," he said.
"Near-term forecasting is another distracting Fed preoccupation. Economists are not immune to the frailties of human nature. Once policymakers reveal their economic forecast, they can become prisoners of their own words. Fed leaders would be well-served to skip opportunities to share their latest musings."
