(bullish steepening on ~140% avg volumes) while WE slept; YoY %age change in DXY (past is prologue?);' as 2023 (cuts) leaves the building, 2024 hopes remain alive
Apparently RATES matter and were just another straw on the proverbial camel’s back into the equity close yesterday … here is a snapshot OF USTs as of 711a:
… HERE is what another shop says be behind the price action overnight…
… WHILE YOU SLEPT Treasuries are steepening and bullishly mean-reverting on solid (~140% volumes) after better receiving was seen in the belly in SOFR, as well several block buys (most recently 2.24k UXY bought at 4:10am). While JGBs traded heavy (again) with 10s30s steepening to 118.2 (2012 levels), UK and EGB yields are mounting a bullish comeback after yesterday’s bludgeoning. 5y UK is -17bps, 10y Germany -5.5bps, while the DXY is weaker to the tune of -0.4%. Risk-assets are also seeing a bounce after some verbal PBoC intervention overnight, SPX futures +1.1% here at 7am, DAX +0.6%, SHCOMP +1.6% overnight. Commodities trade well too as real rates fall: CL +1.3%, XB +2.1%, BCOMAG +0.9%. UST 2s5s10s bfly -2.7bps, 5s30s curve +7bps steeper. Flow has been mixed with a pick up in demand from Eur bank tsy in 2-3y oftr paper following the 7bp tightening in front end spreads over 2 days. FM interest has been mainly selling 10s on the fly and selling the back end outright.
MBS Basis / REIT ETFs: back to Fed ‘intervention’ levels from Q1 2020…
Oh. Ok then. Good to know … and for some MORE of the news you can use » IGMs Press Picks for today (27 Sep) to help weed thru the noise (some of which can be found over here at Finviz).
Now as far as a few things which Global Wall Street is thinking on heels of ‘Black Monday 2.0’ and along with everything they were thinking about thinking this past weekend, here are a couple things which caught my eyes. In short-form,
The continued resiliency of the U.S. economy and the FOMC's apparent willingness to do "whatever it takes" to rein in inflation has led us to upwardly revise our forecast for the federal funds rate. We now see the Committee taking its target range for the fed funds rate to 4.75%-5.00% by the first quarter of 2023.
Central banks across the world are now having to defend their currencies in addition to fighting inflation. The macro environment this week remains very negative; it’s too early to buy this dip in risk assets.
…Bonds may be more concerning than currency moves—2-year UK yields rose over 1% in two days. UK mortgage products are being withdrawn in anticipation of higher interest rates. A large number of UK mortgages reset their rates within two years, risking a higher cost of living. Bank of England Chief Economist Pill speaks today; even a Chief Economist can only do so much damage control.
US mortgage rates are also rising. As nearly all US mortgages are fixed rate, that does not bother existing borrowers. It does affect new home buyers. House price data today is expected to show stagnating prices. Durable goods orders and consumer confidence are also due.
BBG notes 2023 rate CUTS leaving the building (there’s always 2024)
Can You Hear Me Now? The Fed Leaves No Doubt; Focus on Growth Now With the Fed reiterating its commitment to fighting inflation at all costs, both stocks and bonds took another leg lower. Meanwhile, FDX illustrated how big earnings disappointments are not priced, leaving Fire and Ice in full gear. We provide screens for relative value candidates.
… Interestingly, recent economic data have kept the economic soft landing view alive, and as mentioned above, back end rates have moved above our rates team's year-end forecast (Exhibit 2).
… This is in addition to other headwinds we have been discussing for months – i.e., payback in demand and higher costs from inflation to name a few. It's also important to note that such US dollar strength has historically led to some kind of financial/economic crisis (Exhibit 3
And finally, while yesterday was officially listed as a summer ‘vacation day’, I’d like to wish all who celebrate, endless joy in the new year ahead!!
