CREDIT SUPPLY: Magna Mandate

German ASWs push higher, which is particularly striking given the selloff in U.S. swap spreads. Last +1.6-4.9bp.

• This further cements the idea of a “sell the U.S.” theme being evident during some of the recent instances of market stress, as U.S. policy uncertainty and the potential long-term rerouting of global trade flows impacts demand for USD assets.
• Note that German long end swap spreads continue to lag on rallies, with the burden of a meaningful increase in German supply over the medium-term continuing to be felt.
• ASW spreads remain below multi-week/month highs seen earlier in the week. 

Year-end Fed funds implied rates are ~3bps more dovish than yesterday’s close, with 105bps of easing now priced through the December meeting (vs ~102bps yesterday; vs an assumed 4.33% effective). Pricing for upcoming meetings is steadier, with 14bps of cuts priced through May, 39bps through June and 63bps through July.

• Although Fed Chair Powell said on last Friday that FOMC is “well positioned to wait for greater clarity before considering any adjustments to our policy stance”, the impact of the US tariff announcement on markets (e.g. tighter/stressed Treasury market conditions) and economic activity may yet prompt a more dovish stance in upcoming meetings than previously signalled.
• The SOFR strip has twist steepened, with whites +2.0 to +4.0 ticks and blues -5.5 to -6.0 ticks. The long-end has been dragged lower by US Treasuries (details of which were highlighted in an earlier post).
• Fed’s Barkin is scheduled to speak at 1600GMT/1100EST, with the FOMC’s March meeting minutes set to follow at 1900GMT/1400EST (although these minutes are largely stale given the latest developments in US trade policies and the associated market fallout).

• SX5E (20th June) 3500/2500ps 1x2, bought for 14.5 in 5k.

The last time the index traded at these ~3000.00 levels was back in October 2020.