US TSYS: Post-Fed Gov Waller Bid Gains Traction
- Treasury futures continue to extend gains after Fed Gov Waller comments on CNBC interview, green lighting as many four rate cuts this year if economic data cooperates. See 0925ET bullet.
- The Mar'25 10Y contract has bounced to 108-14.5 high (+4), nearing initial technical resistance at 108-16.5/109-06 (20-day EMA / High Dec 31). Curves off lows with 2s10s tapping 39.374 high in the aftermath.
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US TSYS/OVERNIGHT REPO: SOFR Jumps, ON RRP Adjustment Eyed
Secured funding rates rose Monday, led by a 5bp jump in SOFR to a fresh December high of 4.65%. This was not a wholly unexpected development, with a key quarterly tax deadline and Treasury settlements seen applying upward pressure.
- The 7bp SOFR-EFFR spread is unusually high (EFFR printed 4.58% as usual) outside a month-end date, last being this wide on Oct 31.
- As noted yesterday, SOFR and other rates are set to subside later in the week before like being pressured again at month/quarter/year-end, with an additional factor applying downside pressure including a possible/likely 5bp downward adjustment to ON RRP on Thursday post-FOMC.
- Of eight analysts who expressed an opinion, 6 saw the Fed adjusting ON RRP 5bp lower this week, versus two (Citi and Wrightson ICAP) seeing such a tweak as taking place at a future meeting.
REPO REFERENCE RATES (rate, change from prev. day, volume):
* Secured Overnight Financing Rate (SOFR): 4.65%, 0.05%, $2360B
* Broad General Collateral Rate (BGCR): 4.61%, 0.02%, $842B
* Tri-Party General Collateral Rate (TGCR): 4.61%, 0.02%, $818B
New York Fed EFFR for prior session (rate, chg from prev day):
* Daily Effective Fed Funds Rate: 4.58%, no change, volume: $99B
* Daily Overnight Bank Funding Rate: 4.58%, no change, volume: $224B
CANADA: USDCAD Briefly Clears 1.43 For More Firmly Into Overbought Territory
- USDCAD has seen a fleeting breach of 1.43 for the first time since Mar 2020 with 1.4307, having come close with 1.4298 earlier today.
- There has been no lasting downward impact from stronger than expected core CPI in November (including the 3-mth rate of 3.3% at its highest since Jan) with a partial offset from misses for headline and traditional core inflation.
- CAD has seen some relative underperformance on crosses since the 0830ET data, slipping to more in line with AUD and NZD losing circa -0.4% to the USD on the day.
- BoC-dated OIS for the Jan 29 decision sits between 16-17bp of cuts priced.
- Can-US yield differentials have given back some of their post-CPI rise, with the 2Y still extremely depressed at -124.5bps (+1.5bp since data).
- The 1.43 appears to offer some short-term resistance. After that could potentially lie 1.4327 (2.382 proj of Oct 17–Nov 1-6 price swing) but the lower Fibo projection for the same swing at 1.4296 hasn’t had too much sway.
- USDCAD is in overbought territory on a 14-day RSI basis.
STIR: Under 60bp Of BoE Cuts Still Priced Through '25, Most Hawkish Since Nov
GBP STIRs hold onto the bulk of the hawkish repricing triggered by this morning’s firmer-than-expected wage data.
- SONIA futures last flat to -15.0.
- BoE-dated OIS now shows ~58bp of cuts through ’25, set to register the most hawkish close since November 13.
- Expect today’s wage data to make most MPC members more cautious when it comes to the idea of further rate cuts.
- We already expected the BoE to leave bank rate unchanged at Thursday’s decision, with an 8-1 vote split (Dhingra dissenting).
- Today’s data outcome has further reduced the odds of dovish dissenters joining Dhingra.
- CPI data is due tomorrow morning and presents the final key data input ahead of Thursday’s BoE decision.
- One of the biggest determinants of whether CPI surprises or not, in our view, will be the timing of the survey date. This is owing to the Black Friday shopping event and related discounts. Read more in our preview here.
