FED: FOMC Minutes Preview: QT, IORB Tweak, Reserve Management Purchases (3/3)
Nov-19 16:48
Outside of the debate over the path of policy rates in the Minutes, we will be eyeing the discussion around balance sheet and rate management given the meeting's decision to end QT effective December 1.
- While that decision wasn’t a major surprise, we will be watching in particular whether there was mention of potential timing to start reserve management purchases, or lower the administered IORB rate within the Fed funds range in response to funding rate pressures evident in October.
- There is increasing speculation that IORB could be lowered as soon as the December meeting, while reserve management purchases (probably in bills) are expected to start in the first half of 2026 as the Fed rebuilds its balance sheet to meet the underlying growth in liability demand.
- The Fed has lowered interest on reserve balances (now called IORB, previously referred to as IOER) relative to the Funds range in previous episodes as it navigated a pullback in reserves. The FOMC ratcheted the administered rate lower by 5bp relative to the policy rate in each of June and Dec 2018, and May and Sep 2019, from 25bp above the lower bound to just 5bp above it, before increasing it again in 2020-21 back to 15bp.
- The FOMC may well have discussed this last month: KC Fed Pres Schmid last week mentioned lowering IORB, a technical adjustment which would see repo rates fall and in theory allow the Fed to hold fewer reserves than it otherwise would: "Another possible action could be to lower the interest rate that the Fed pays on reserves within the target band. Currently this rate is 15 basis points above the bottom of the band. Lowering the rate within the band would allow more space for other interest rates to move before bumping up against the top of the band. This would allow for a greater range of private intermediation of reserve demand before the Fed would feel the need to take action."
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US 10YR FUTURE TECHS: (Z5) Bullish Outlook
Oct-20 16:45
- RES 4: 115-00+ High Oct 1 ‘24 (cont)
- RES 3: 114-21+ 1.00 proi of the Aug 18 - Sep 11 - 25 price swing
- RES 2: 114-10 High Apr 7 (cont) and a key resistance
- RES 1: 114-02 High Oct 17
- PRICE: 113-18 @ 11:08 BST Oct 20
- SUP 1: 113-00 20-day EMA
- SUP 2: 112-30 Low Oct 13
- SUP 3: 112-19+ 50-day EMA
- SUP 4: 112-06 Low Sep 25
Treasuries remain in a clear bull cycle. Friday’s initial gains resulted in a breach of key resistance at 113-29, the Sep 11 high. This confirms a resumption of the M/T uptrend. Note that MA studies are in a bull-mode position and this set-up continues to highlight a dominant uptrend. Sights are on 114-10, the Apr 7 high (cont) and the next key resistance. Firm support lies at 112-30, the 20-day EMA. S/T weakness is considered corrective.
US TSYS: UPDATE Post-Trump/China Tariff Headlines React
Oct-20 16:27
- Treasury futures are modestly higher after testing morning highs as Pres Trump talks tough on China "if they don't do business with the US": "CHINA WILL THREATEN US W RARE EARTHS, I REPLY W TARIFFS" Bbg
- The Dec'25 10Y futures contract trades +3.5 at 113-18.5, 113-10.5 low / 113-19 high on moderate volume of 727,000. MA studies are in a bull-mode position and this set-up continues to highlight a dominant uptrend. Sights are on 114-10, the Apr 7 high (cont) and the next key resistance.
ITALY AUCTION RESULTS: Day 1Oct-32 BTP Valore Books Total E5.4bln
Oct-20 16:23
- Day 1 books for the Oct-32 BTP Valore (ISIN: IT0005672016) totalled E5.4bln.
- This will be the fifth BTP Valore issued (but the first of 2025) and have the longest maturity to date. Since launching in 2023, BTP Valore volumes have ranged from E11.2-18.3bln with maturities ranging from 4-6 years.
- The last BTP Valore issued in May 2024 (maturity May 2030) saw day 1 books total E3.70bln.
- So far in 2025 there have been two Italian retail offerings: the 9-year BTP Piu in February for E14.9bln and the 7- year BTP Italian in May with a retail takeup of E8.8bln.
- Books for the Oct-32 Valore will close at 1300CET on October 24. The guaranteed minimum coupon rates will be 2.60% for years 1-3, 3.10% for years 4-5 and 4.00% for years 6-7.
