"... net new bond issuance should be high ..."
SUPPLY > demand (defending your life (and rates call)
With most of the global macro market focus TODAY on a few words from big pharma CEO regarding (less than optimal) vax efficacy — FT:
Moderna chief predicts existing vaccines will struggle with Omicron
Stéphane Bancel foresees ‘material drop’ in current jabs’ effectiveness, sending stocks and oil prices lower …
With this bout of risk OFF F2Q bid for BONDS in mind, I thought it might be important to keep VIRUS news flow — driving markets — in context of global markets LIQUIDITY PROVISIONING.
Think supply v demand (and the stock v flow) debate where haters (those who continue to view HIGHER RATES as most likely outcome) use logic and charts like this when defending their lives.
MS summarizes recent outlook of that stock vs flow debate in this way:
…Beginning the Journey Toward Tighter Financial Conditions
Our Macro Strategy team believes that in 2022, macro markets will begin a journey toward tighter financial conditions, albeit accompanied by protection from still-abundant liquidity. While they project that G7 central bank purchases of coupon bonds in 2022 should reach US$0.73 trillion (a $1.8 trillion dollar decrease from 2021e), they also estimate that investors will have to absorb US$2.03 trillion of net coupon government bond issuance (vs. US$1.69 trillion in 2021e), the third-highest amount of net issuance since 2007. Importantly, they believe that this degree of government bond supply is not likely to put upward pressure on yields, as they think that the marginal increase over 2021 is already largely expected by investors.
The key here is the a$$umption CBs course has ALREADY BEEN PREDETERMINED and there is ZERO POINT ZERO flexability.
While that would be all of our collective HOPE (virus behind us we’ve got to move on to the next phase, normalizing etc…), I can only say that MY crystal ball has not yet come back from the dry cleaners SO … be careful of the a$$umptions and conclusions you are pricing …