overnight flows; "If Stocks Don't Fall The Fed Needs To Force Them" -Dudley; Japan 'SHEDS $50 bn bonds' in 10wks ...
Good morning. With Tiger’s return TO The Masters today and NYY home opener tomorrow, and oh, yea all that Fedspeak yesterday …
From current Fed officials (BRAINard) and the yesterday’s MINUTES to FORMER Fed officials (If Stocks Don’t Fall, the Fed Needs to Force Them -Dudley below), markets are continuing to reel and deal with whatever it is they don’t know.
I simply don’t have too terribly much to add TO balance sheet reduction — THIS VISUAL, simple as it may seem, offered YESTERDAY
For something more of a visual ‘food for thought’, this picture from a large German bank just yesterday — titled, “Plummeting refinance activity portends a slower QT”
Tell me with confidence then HOW bonds / yield curves - current and forward / nominal, infl adj will respond to taper / tightening and THEN we can do some calculus as to where the rates will be. And kindly consider all the consequences. Those which we are currently NOW ‘benefiting’ from as the Fed saved the world from the COVID (says a guy who built house and bought a used car within past 12mos reaping directly these ‘benefits’) and think about skating to where the puck is going to be.
For more on THAT — DB offered YESTERDAY their version of what THEY believe is GOING to happen over the next couple/few years.
For now, though, here is a snapshot of UST rates, prices and moves as of 730a
… And HERE is what other shops saying behind the overnight price action … This is from ‘best in biz’ — a morning comment titled, “Japan Sheds $50 bn bonds in 10 weeks”
… Overnight, the MoF data confirmed that Japan was a net seller of overseas notes and bonds into the nation’s fiscal year end. Investors in the region sold a net of -$13.6 bn during the week ended April 1 versus sales of -$5.7 bn in the prior week. This brought the six-week moving-average to -$4.6 bn compared to - $2.3 bn prior. Japan has now been a net seller during nine of the last ten weeks; aggregate flows during this period were -$50 bn. Said differently, since January 31, Japanese investors have sold $50 bn in overseas notes and bonds (presumably a significant portion was in US Treasuries)…
… Overnight Flows
Treasuries were modestly bid overnight with the 2-year sector leading the price action. Overnight volumes were near the norms with cash trading at 106% of the 10-day moving-average. 5s were the most active issue, taking a 36% marketshare while 10s were a distant second at 30%. 2s and 3s each took 12% for a combined 24%. 7s managed 7%, 20s <1%, and 30s 3%. We’ve seen two-way flows in 2s as well as light selling in 10s.
… and for some MORE of the news you can use » IGMs Press Picks for today (07 April) to help weed thru the noise (some of which can be found over here at Finviz).
For somewhat MORE on being back TO square 1, UBSs Paul Donovan
Inflation versus deflation, again
The US Federal Reserve minutes signaled a phased cut in the central bank’s balance sheet—USD 95bn per month. The Fed is already tightening organically (balance sheet falling relative to the economy). It proposes tightening passively (not reinvesting maturing holdings), and may tighten aggressively for mortgage bonds (selling bonds outright).
The Fed minutes laid out the dilemma of price inflation versus growth deflation. The prospect of 0.5% rate increases was kept open. It is almost a truism that tightening monetary policy more aggressively at a time of structural change, cyclical uncertainty, falling real spending power, slowing consumer demand, and poor quality data increases recession risks.
The ECB minutes will also focus on price inflation versus growth deflation. The cost of living has been politicized in Europe, but differently to the US. The US debate is trying to blame the president for personally pushing up prices. The European debate is whether governments do enough to mitigate the exogenous price increases.
US initial jobless claims are not market moving, though may matter more in the coming months (will firms slow hiring as demand cools further? Will the cost of living raise participation?). ECB and Fed speakers are rendered redundant by the minutes. We also hear from the Bank of England’s Pill.
With this (little) offered and in mind AND with the Fed’s intent a secret to exactly NOBODY, this from Dudley (yest)
IF you prefer the video — which I’ve gotta say, was thoroughly enjoyable and enlightening yesterday morning …
Seems to ME (and markets — bonds and stocks), hey may have helped pen recent Fed officials and THE MINUTES released yesterday … I’m waiting to see some ‘minutes’ from the likes of Lacy Hunt / HIMCO (here are his words from Q4 2021) and … THAT is all for now. Off to the day job…