… clowns to the left of us jokers to the right, and here we are, stuck in the MIDDLE with you … momentum has rolled over from overSOLD levels (signal) and it would seem then to ME to make sense that one should continue ‘throwing stones in the wettest paper bag’ (‘scuse the Gartman’ism / reference) especially as it is that rate CUTS are still priced… despite or because of your belief system … That said, momentum isn’t as compelling as it was a few short sessions ago and when you pinch / zoom in it seems to be more NOISE than signal … hold those stones, for now …
… I’ll skip right along and rest of week going to be brief / topical posts (completely missing Thursday due to travels) and some of what is IN prices …
ZH: Sentiment & Stock Prices Spark Biggest Plunge In US Leading Economic Indicators In 17 Months
ZH: Gold & Crypto Surge, Dollar & Stocks Purged As Trump-Fed Feud Escalates
…Interestingly, the market is moving towards Trump's position, now pricing in 4 rate-cuts this year...
… The US yield curve (2s10s) soared to +66bps - its steepest since Jan 2022...
Taking SOFR Swap Spreads as a proxy for pain, the basis trade suffered significantly today...
… here is a snapshot OF USTs as of 543a:
… for somewhat MORE of the news you might be able to use … a few more curated links for your dining and dancing pleasure …
… The curve steepening trend dominated conversations in the US rates market on Monday as 2s/10s reached 66.4 bp and 5s/30s touched 96.6 bp – the steepest for 5s/30s since October 2021 and within easy striking distance of 100 bp. While we’ve attempted to play for a near-term, tactical flattening in 2s/10s, if we take a step back, the broader steepening of the curve continues to resonate.One key nuance is that this magnitude of steepening typically occurs in a bond bullish fashion as the FOMC is seen preparing to lower rates. During the current episode, Trump appears to be the loudest voice calling for rate cuts at the moment. In his latest social media post, the President observed that, “‘Preemptive Cuts’ in Interest Rates are being called for by many. With Energy Costs way down, food prices… substantially lower, and most other ‘things’ trending down, there is virtually No Inflation. With these costs trending so nicely downward, just what I predicted they would do, there can almost be no inflation, but there can be a SLOWING of the economy unless [the FOMC] lowers interest rates, NOW.”
Just a few thoughts that we’ll offer here: 1) Economic data is notoriously backward looking. 2) Trump’s tariffs have significant inflationary implications – even if such pressure will be temporary and function as a tax on the consumer. 3) The FOMC has made meaningful progress in reestablishing price stability and we’re certainly sympathetic to the Fed’s unwillingness to alter policy rates given the near-term inflationary impulse from the President’s trade agenda as revealed thus far. 4) Pushing forward with a campaign to pressure Powell into cutting rates isn’t likely to lead to the President’s desired outcome – instead, it will leave the Fed more entrenched in its central bank independence stance.
There appears to have been a tone-shift among market participants. There was a subset of investors who had been comfortable with Trump’s initial interpretation of near-term dislocations in the real economy ultimately resolving into a stronger footing for the US. That has now given way to wholesale angst that the White House derails growth. This comes at a moment when the Q1 growth profile is already under meaningful pressure. For context, the Atlanta Fed’s GDPNow tracker is running at -2.2%, but when backing out the gold imports/exports, the gauge is -0.1% – still troubling on the eve of an escalating trade war. Moreover, the BBG consensus is at +0.4% (albeit with just three estimates at this stage)…
Supply creates its own demand or …
21 Apr 2025 BNP US rates: Treasury can consider cutting coupon sizes
KEY MESSAGES
We think the sharp rise in UST yields played a key role in starting the 90-day pause on tariffs – reinforcing the Trump administration’s bond vigilance.
Our analysis of this event suggests that the two main reasons behind rising yields were (1) a swap spread unwind and (2) perceived foreign selling, though not backed by data. We think the basis trade was a boogeyman for the sell-off.
We see the administration remaining bond-vigilant with (1) a fast-tracked timeline for SLR deregulation and (2) guidance for stable coupon supply for the foreseeable future. We think the administration can also consider small coupon cuts as a high bang-for-the-buck option.
We suggest adding long 30y SOFR swap spreads. Entry: -92bp. Target: -78bp. Stop: -99bp.
We think the administration’s reflexivity to the bond market will also be visible as tax-cut legislation is decided in the coming months.
…What drove the rise in yields after Liberation Day? Bond vigilance tested, but remains firm …
Foreigners not selling USTs, though perception remains …
Hedge funds unwound swap spread trades, not cashfutures basis …
Swap spread unwinds played a key role …
Keep your friends close and your appropriate hedges closer (if you can find them) …
… In a pattern of bonds being an increasingly poor hedge for equities, long-term Treasuries saw a renewed sell-off. 10yr yields moved +8.6bps higher to 4.41% and 30yr yields rose +10.4bps to 4.90%, their highest since January. This rise was driven by real yields, with the 10yr real yield up +9.4bps to 2.18%. By contrast, 2yr yields fell -3.5bps to 3.765% as the amount of Fed rate cuts priced by December rose +6.1bps to 93bps. These moves translated into a sharp steepening of the yield curve, with the 2s10s and 2s30s slopes reaching their steepest levels since January 2022, shortly before the Fed started its post-Covid hiking cycle …
April 21, 2025 First Trust: Monday Morning Outlook - Near Zero Q1, Uncertainty Ahead
We’ve expected a recession for more than a year now. Simply put…the Era of Easy Everything is Over. Expanding deficits and easy money (that have lifted the economy since COVID) are no longer with us. At the same time, tariff negotiations have created an unbelievable amount of uncertainty. Add it all up and we expect 0.3% real GDP growth in the first quarter…
…We do expect government spending to slow in the quarters ahead. At the same time, monetary policy is no longer easy. In other words, the jury is out on whether the first quarter is a sign of things to come. We still think the US has to experience economic pain in order to move to a more sustainable long-term policy environment. Getting there is creating a great deal of uncertainty. Stay cautious.
The president’s recent comments about Fed Chair Powell raises risks of threats to Fed independence
Supreme Court precedent would appear to guarantee Powell’s job security
However, that precedent is currently being reviewed
If precedent is overturned and Fed independence is chipped away at, inflation and interest rates could move higher
…Any reduction in the independence of the Fed would add upside risks to an inflation outlook that is already subject to upward pressures from tariffs and somewhat elevated inflation expectations. Moreover, market participants would likely demand greater compensation for inflation and inflation risks, thereby increasing longer-term interest rates, weighing on the outlook for economic activity and worsening the fiscal position. It has been hoped that these adverse consequences would dissuade the president from threatening Fed independence, though so far the president has often followed through on his intentions.
AND a recap of poor liquidity …
April 21, 2025 MS: Global Macro Commentary: April 21
Declining demand for US securities; poor liquidity exacerbates Tsy twist-steepening; EUR reaches highest level since 2021; long-end JGBs underperform; gold reaches fresh highs; Fed's Goolsbee sees rates lower in the next 12-18 months; DXY at 98.37 (-1.0%); US 10y at 4.411% (+8.6bp)
Demand for US securities retreats amid developments between the US administration and the Fed; US equities fall sharply (S&P 500: -2.3%), USD weakens (DXY: -1.0%), and long-end USTs sell-off.
UST curve sharply twist steepens as expectations for additional Fed easing support the front-end (2y: -4bp), while the need for higher term premium weighs on the long-end (30y: +10bp); SOFR swap spreads come under pressure once gain, led by the long end (30y Spread: -4bp)….
US President Trump again called for lower US interest rates. Markets interpreted this as undermining Federal Reserve independence, and markets do not like that (US assets weakened). The coming US economic slowdown is driven more by rising risk than high rates. Borrowing to fund investment and consumption balances the cost of capital with uncertainty about the future. Rising uncertainty is the US problem.
Simplistically, real interest rates will decline in the face of the coming inflation surge. However, lower real rates boost economic growth when consumer or corporate incomes grow at a higher rate than the interest rate level. First-round inflation from tariffs only increases government income. If US manufacturers and retailers raise prices, using further rising tariffs as an excuse, that will lower their real borrowing costs (but consumers still suffer, and uncertainty still constrains companies)…
Stock prices fell sharply today in response to President Donald Trump's recent unseemly barrage of hostile tweets directed at Fed Chair Jerome Powell. Trump seems to be setting Powell up to be the fall guy if Trump's Tariff Turmoil (TTT) causes a recession later this year. Also unnerving stock prices was a warning from Beijing to all its trading partners against succumbing to US pressure to isolate China in Trump's tariff war, as part of its carrot-and-stick approach to win over countries caught between the world's two largest economies. "China firmly opposes any party reaching a deal at the expense of China's interests. If such a situation arises, China will not accept it and will resolutely take reciprocal countermeasures," a Chinese government spokesman stated.
Let's assess the latest damage resulting mostly from TTT:
(1) The VIX was relatively high today. The yield spread between the high-yield corporate bond composite and the 10-year US Treasury bond is widening, flashing orange about the rising odds of a credit crisis resulting from the stress of TTT on the financial system.
(2) The S&P 500 remains in correction territory with a 16% drop since February 19. It is likely to retest its April 8 low and probably find support there. If so, then the market may be forming a bottom.
(3) The Nasdaq was down to 15,870.90 today nearing a retest of its bear-market low on April 8. It is now a bit below its previous bull market peak at the end of 2021.
… And from the Global Wall Street inbox TO the intertubes, a few curated links …
… The latest rock slipped in an early morning social media post by President Donald Trump. Here is his latest wisdom on interest rates:
For context:
None of the “many” calling for preemptive cuts have mentioned it to me…
… Driving the greatest concern, as ever, is the bond market. Short-term bond yields are falling, as would be expected when the economy is at risk of slowing and people need a shelter. What is startling, and completely contrary to the experience of decades, is the rise in longer yields. It isn’t normal for money to flow out of the world’s safest investment when people are worried. While 10-year yields are still not at any kind of exceptional level, the direction of change is unsettling. Maybe a Fed rate cut would help, but experience since the 50-basis-point cut last September shows that it might well not:
… didn’t realize John was to be informed of all things important and all knowing or otherwise, it doesn’t count. Furthermore … did Dr. Lacy Hunt’s missive (noted HERE and a pretty bullish, rate CUT read) MISS Johns desk?
I’ll quit while I’m behind … THAT is all for now. Off to the day job…
2 yr note, 50 bps below Fed Funds rate...
Powell asleep, again...
GDP forecast cut.....Inflation down, nearing 2 %
But Biden/Harris not running for re-election, anymore..
Powell looks Political.....
https://www.cnbc.com/2025/04/22/imf-slashes-us-growth-forecast-by-nearly-one-percentage-point.html