JGBS AUCTION: Poor Demand Metrics For 20Y Auction
The 20-year JGB auction delivered poor results across key metrics. The low price underperformed dealer forecasts, which were set at 100.40 according to a Bloomberg poll. Moreover, the cover ratio decreased to 2.9639x from 3.4594x in the previous auction and the auction tail lengthened dramatically to 0.34 from 0.20.
- As noted in the auction preview, today’s offering featured an outright yield at a cycle high, 15bps higher than last month’s auction.
- Moreover, the 10/20 yield curve was at its steepest since 1999 and the 20-year JGB was at its cheapest valuation within the 10/20/30 butterfly since early 2023.
- As a consequence, this result is likely to be seen as significantly worse than the mixed performance observed in the 30-year JGB auction earlier this month.
- Post-auction, the 20-year JGB is little changed.
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FED: March Economic Projections: Higher Inflation, Weaker Growth, Same Rates
The MNI Markets Team’s expectations for the updated Economic Projections in the March SEP are below.
- The unemployment rate is likely to rise slightly for 2025 alongside a downgrade in GDP growth, while the 2025 core and headline PCE inflation projections are set to rise again. Changes to later years will likely be limited, however.
- More detail on the shift in Fed funds rate medians is in our meeting preview - we will add more color next week.
FED: Market Pricing Nearly 3 2025 Cuts As Conditions Tighten
Amid rising government policy uncertainty, sentiment among businesses and consumers has fallen sharply since the start of the year, while equities and the dollar have reversed their post-election rise. Overall, financial conditions have tightened, even if stress is not yet mounting, e.g. no major widening of credit spreads (the accompanying chart shows the Fed’s financial conditions impulse index but only through January).
- Combined with growth fears, this has affected expectations for the Fed’s rate path, with around 18bp more cuts expected in 2025 compared with what was seen after the January FOMC. 65bp of cuts are priced for the year as a whole. 2025 cut pricing reached 71bp before the February inflation data and 76bp before the February payrolls report.
- A rate cut is seen with near zero probability for March’s meeting, but the first full cut is just about priced for June, with a second nearly priced by September.
- Chair Powell has no reason to endorse or refute these expectations – he’s likely to be happy with a press conference that ends with little discernable change in pricing.
CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
- CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
