US TSYS: Wrightson ICAP Weigh In On Last Week's Selloff
Apr-14 09:14
Wrightson ICAP provide a few observations around last week’s UST selloff:
- Basis trades: ICAP note that the latest CFTC report “did not provide any superficial evidence of large-scale basis trade liquidations as of Tuesday, April 8”. However, they note that “in a turbulent market, the aggregate data in the chart below can mask massive shifts in individual portfolios” and that “importantly, they also don’t tell us anything about deleveraging in other popular trades such as swaps-spread positions”.
- Congestion In the UST Market: “Trading volume in Treasury securities exploded in response to Wednesday’s tariff U-turn, with volume in on-the-run coupons surging to $1.8 trillion in the April 9 TRACE data – nearly three times the daily average volume in the first quarter”…”While this surge once again focused attention on concerns that the market’s intermediation capacity has not kept pace with the growth in the overall Treasury market, Fed officials noted that the market’s infrastructure was ”strained but functioning”".
- Signals from Buyback Results: “The results of last week’s Treasury buyback operations did not appear to indicate an urgent need for an official-sector buyer of last resort at this point”….” We’ll be especially interested to see the results of the Treasury liquidity support operation in the 5- to 7-year nominal sector that is scheduled for this Tuesday”.
- Morning SRF Operations: “It probably would have been useful if that [morning SRF operations] option had been available to dealers last week – especially during the funding tightness on the morning of April 9. That said, we think the Fed was wise not to rush them back into place on an ad hoc basis last week”.
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FED: March Economic Projections: Higher Inflation, Weaker Growth, Same Rates
Mar-14 21:28
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
Mar-14 21:25
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
Mar-14 21:17
- CANADA'S CARNEY ANNOUNCES ELIMINATION OF THE CONSUMER CARBON TAX
