while WE slept: USTs in the red; demand for higher TP behind selloff, buyer 10s, front end weighed Waller's (dovish) comments; (IG)bid / ask spreads widening
Good morning … While there are lots of explanations AFTER THE FACT about the bond selloff and today they seem centered around Term Premium (TP), I’ll take it all in and pass much along … as I do, I’ll note once again how it remains true that narratives follow price.
Continue reading for more on TP where it seems everyone has some light to shed and today you’ll note some topical updates from Barclays, DB and Bloomberg …
And on THAT note of price, I’ll ask … did you happen to rent any 5s yest?
NOT, repeat NOT a recommendation OR any sort of victory lap … one idea in a row that did NOT immediately turn about face, does NOT a pattern make … that said, ZH just below does note, “…Today's 16bps drop in the 5Y is the biggest single-day drop since August 2024…”
Not too shabby …lets revisit BECAUSE where they stopped and currently reside does seem interesting and consistent …
5yy: 4.25% and 4.00% are triangulating TLINES etched in …
… momentum still suggests yields to decline BUT TLINE ‘resistance’ does act as a speedbump … are you ‘puttin some hay in the barn’ here?
NOW in as far as some of the data and FEDSPEAK incorporated into prices …
ZH: NY Fed Survey Inflation Expectations Make Mockery Of UMich Propaganda
April 14, 2025 at 2:00 PM EDT Yahoo: Fed's Waller warns high tariffs could push inflation near 5% while economy slows 'to a crawl'
… "If the slowdown is significant and even threatens a recession, then I would expect to favor cutting the FOMC's policy rate sooner and to a greater extent than I had previously thought," Waller said…
And as the day came to a close, here’s how ZH characterized it all, where I’ve highlighted, as usual, a few of the more rates-related funTERtainment …
ZH: Treasury Yields Tumble As S&P Suffers 'Death Cross', Dollar Decline Continues
… Bonds were aggressively bid today with the belly of the yield curve outperforming (5Y -15bps, 30Y -6bps) after Fed Governor Christopher Waller said that the inflationary impact of tariffs would be temporary and favors rate-cuts in either a short-term inflationary environment (transitory) or recessionary one: "The risk of recession would outweigh the risk of escalating inflation"...
Today's 16bps drop in the 5Y is the biggest single-day drop since August 2024.
The 2Y Yield erased all of Friday's surge higher...
Today's 12bps range in the 10Y Yields looks positively 'normal' compared to the last week or so...
And rate-cut expectations dovishly rose...
… AND there was far more. But thats it from me, for now … here is a snapshot OF USTs as of 707a:
… for somewhat MORE of the news you might be able to use … a few more curated links for your dining and dancing pleasure …
NEWSQUAWK US Market Open: Generally positive sentiment but with recent pressure seen after China seeks to halt Boeing deliveries … USTs are in the red, with some modest pressure seen in early European trade as the general risk tone improved - this took USTs to a 110-17 low. However, the tone was clipped by a BBG source report that China has ordered a halt to Boeing deliveries, a report which lifted USTs from the mentioned trough to just above opening levels of 110-21+; as such, USTs are closer to unchanged on the session with yields slightly mixed but the curve still flatter.
The S&P500's short-term 50-day moving average is about to drop below the closely-watched 200-day line. Known by traders as a 'Death Cross', the last time this happened in 2022 the index lost almost another 1,000 points over six months
In a world of such dramatic fundamental policy and economic disruptions, financial chart patterns and trends may seem a little beside the point. But some of these remain important for investment funds and strategists who rely on market momentum signals.
Finviz (for everything else I might have overlooked …)
Moving from some of the news to some of THE VIEWS you might be able to use… here’s some of what Global Wall St is sayin’ …
Positions matter and this note details some of the more topical positions and flows including those in rates space …
15 April 2025 Barclays: Long & Short of It Everything selling off all at once
LOs continue to cut equity exposure while HFs hunt for opportunities; retail shows a steady hand in equities while exiting bonds; systematic allocations have collapsed to near COVID/GFC lows; equity vol leads the charge in cross-asset risk.
Institutions turn tactical...
...while retail shows a steady hand (in equities at least)…
…Systematic fund allocation collapsed to near COVID/GFC lows…
…Equity vol led the charge in the aggressive repricing higher of risk across assets…
…Bond selloff likely due to domestic investors demanding a higher term premium; Long positioning in bonds by asset managers remains elevated despite the bond selloff …
…US Credit saw an exodus of cash during the bond sell-off last week; flows into short-term US Gov't bonds picked up while long-term Gov't bonds saw outflows
Best in show with a recap and specific tip of the hat TO WallEEEEEEeeeee …
… The front-end was bid on dovish commentsfrom Fed Governor Waller who laid out two broader scenarios for policy rates depending on the evolution of tariff policy. The ‘large’ tariff scenario assumes that average tariffs of roughly 25% remain in place for some time. The ‘smaller’ tariff scenario assumes a removal of most of the announced tariffs, bringing the average effective tariff rate down to roughly 10%. Waller’s large tariffs scenario is associated with ‘bad news’ rate cuts. Specifically, “With a rapidly slowing economy, even if inflation is running well above 2 percent, I expect the risk of recession would outweigh the risk of escalating inflation, especially if the effects of tariffs in raising inflation are expected to be short lived.” Conversely, in the small tariffs scenario, Waller says that ‘good news’ rate cut(s) are “very much on the table in the latter half of this year.”
The key takeaway is that Waller’s outlook reflects a clear bias for rate cuts regardless of the size of his tariffs assumption. Whether core-PCE peaks in the 4-5% YoY range in the ‘high’ inflation scenario or around 3% YoY under ‘lower’ tariffs, rate cuts are on the horizon, it’s only a matter of timing. Waller also made headlines on Monday by saying, “my best judgment is that higher inflation from tariffs will be temporary. If this inflation is temporary, I can look through it and determine policy based on the underlying trend.” There’s been great nuance and variation to policymakers’ willingness to embrace the term “transitory” as it relates to the inflationary impact of tariffs. Regardless, core officials’ characterization of tariff-linked inflation as temporary has anchored investors’ understanding of the FOMC’s reaction function to higher realized inflation in 2025 – i.e. delaying cuts is as hawkish as the current Committee will be…
French weighing in and BUYIN’ … now … ? for better or worse …
KEY MESSAGES Our Data Trackers project a substantial weakening of US data due to tightening conditions that took place both in February and last week. The USD is the asset that is most sensitive to data, but it appears oversold already. We enter long duration via the oversold US 10y Treasury…
…Trade ideas: Rates – outright Initiating long US 10y: MarFA Macro suggests that the current US rates sell-off is overdone. According to MarFA Macro (slower - 1y lookback) …
… Fundamentally, we have turned more neutral on duration and outline many technical and fundamental reasons behind the rise in Treasury yields (see US rates: A selfpropagating rise in yields?, dated 9 April).
Tactically, though, we see US 10y nominals and real yields as having de-coupled from the current deterioration in data strength and data surprises. We see further buying pressure possibly stemming from a further deterioration in the data due to current tight financial condition levels.
… AND not to be outdone by the French, a rather large German operation weighs in …
14 April 2025 DB: Four rights, one wrong and four mispricings
We mark to market our analysis and views on recent events and market pricing. Four underlying statements have proved correct so far: (1) owning USTs is unlikely to be a good hedge in the current environment; (2) EGB spreads are likely to be resilient; (3) aggressive tariffs are likely to be politically and economically counterproductive; and (4) any off-ramp is likely to come from a US relent. Given the points above, we assumed that the US administration would adopt a more considered approach to its trade policy. This assumption proved incorrect, which has put some of our existing trades under pressure.
Most markets have evolved in a way that makes directional sense, even if the scale of the moves can be debated. There are, however, four mispricings worth highlighting: Canadian government bonds have underperformed relative to fundamentals; the long end of the JGB curve has also underperformed relative to fundamentals; the EUR long end has overperformed excessively; and the decline in US forward breakevens is inconsistent with the repricing of term premia.
We add a long JGB30Y (indicative target 2.55%, indicative stop 3%) to our macro portfolio, while we reassess our other existing trades and the extent to which it may be too late for a US relent to unwind some of the recent moves.
… USTs are not a good hedge in the current environment. Prior to 2 April, we had argued in three separate notes that 10y US Treasuries were unlikely to be a good hedge for equities and that the hurdle for a rates rally was high even if tariffs resulted in a recession, thereby making the implausible (recession without lower 10y UST yields) happen again. This statement was (and remains) conditional on no fiscal tightening in the US. Moreover, we expected the Fed to be constrained and term premia to rise. Correct.
Same shop with an(other) economic view of tariffs …
The April 2nd tariff announcements marked a monumental shock to global trading relationships that would act as a historical tax on the US private sector. Although worst case outcomes may be avoided for now given the administration's recent relent, doubts remain about the path ahead. Regardless, record levels of policy uncertainty and the sharp tightening of financial conditions has already set the US economy on a weaker growth trajectory.
The mechanical impact from the tariffs plus the drag from trade policy uncertainty together represent an adverse shock of up to 2 percentage points to growth in the coming quarters. Under a baseline assumption of no further material tariff escalation – and eventually some further tariff relief – as well as a tax package passed this summer, we now see growth slowing sharply in 2025 to 0.9% (Q4/Q4). Growth should then rebound in 2026 to 1.75%.
Slower growth is likely to push the unemployment rate to 4.6% by year end. Despite this weakening, we have revised our inflation forecasts materially higher, with core PCE and CPI near 3.6% and 4.0% this year (Q4/Q4). These are not upper bounds. Tariff pass-through could be greater than the 50% we assume, especially given weaker dollar dynamics, and inflation expectations are vulnerable to moving higher, particularly if the Fed eases aggressively to avoid a recession.
Our forecast creates a tension for the Fed. Although policy rules on balance argue for a hawkish response to this outlook, we now see the Fed cutting in December, followed by two more 25bp cuts in Q1 2026. These reductions will bring the fed funds rate into the 3.5-3.75% range, consistent with our view of neutral. Cuts could come earlier if unemployment rises more sharply, while jittery inflation expectations could push rate reductions into 2026.
Risks are two-sided and larger than usual. The policy path will be the primary driver of whether or not a recession manifests, and conditional on one happening, how deep it is. Stronger growth outcomes require a quicker resolution of the trade war and a renewal of confidence in US policymaking, likely combined with a more aggressive fiscal response (though the latter could aggravate dynamics at the long end of the curve). Weaker growth outcomes could arise from an emergence of the typical non-linearities around recessions, which are likely if the administration commits to staying the course on tariffs no matter the fallout.
AND finally, an update out just a short while ago, this morning … and early morning read … there are different ways the markets can / will spell relief
… With the latest advance for equities, that now means that the S&P 500 has recovered to -4.67% beneath its level at the tariff announcement, and -12.01% beneath its mid-February peak. That’s clearly a significant decline, but it’s still some distance from a normal recession decline, or even some of the larger non-recession bear markets of recent years like 2022, which saw a -25% peak-to-trough fall. So it’s clear that investors aren’t convinced that a recession is inevitable just yet.
Whilst equities were recovering, arguably a bigger relief for investors was the recovery in the bond market, which eased fears about some sort of serious financial turmoil developing. Investors had already been alarmed, and last week’s +49.5bp jump in the 10yr Treasury yield was the biggest weekly jump since 2001, with the yield moving higher every day last week. However, that began to reverse yesterday, with the 10yr yield (-11.6bps) down to 4.37%, and this morning it’s fallen a further -2.3bps to 4.35%. The moves got further support later in the session thanks to dovish comments from Fed Governor Waller, who said that although “the tariffs after April 9 were very large, I still believe they would have only a temporary effect on inflation.”
A further relief for Treasuries came from the New York Fed’s latest Survey of Consumer Expectations. It showed long-term inflation expectations were stable in March, with the 5yr measure actually coming down a tenth to +2.9%. So that will be a relief for the Fed, as the survey painted a very different picture to the University of Michigan’s survey, where long-term inflation expectations surged to multi-decade highs. Indeed, Chair Powell himself has spoken about how the Fed’s “obligation is to keep longer-term inflation expectations well anchored”, so it’s a crucial question for markets. It’s true that the NY Fed’s 1yr expectation measure rose half a point to 3.6% in the NY Fed’s survey, but even that was far more subdued than the University of Michigan’s number, where the 1yr measure was at +5.0% in March, and +6.7% in April…
Quantitative Easing was different during COVID than during the Financial Panic of 2008. During COVID, M2 growth soared, while it was held back during the Financial Panic by much tighter liquidity controls on banks. That’s why we were among the first and very few who predicted much higher inflation due to COVID policies…
… The same M2 measure of money that signaled high inflation several years ago is only up 3.9% in the past year. By contrast, M2 grew at about a 6.0% annual rate in the ten years before COVID, and that was during a period when PCE inflation averaged 1.5% per year. In other words, there’s a case to be made that monetary policy should be looser so that M2 could grow faster than it has in the past year.
Unlike some other analysts and investors, we are not concerned that tariffs will lead to much higher inflation, as inflation ultimately depends on monetary policy, not tariff or tax rates. Yes, tariffs could increase the price of the particular items being tariffed. But that means less money would be left over to buy other goods and services, so demand – and prices – typically fall, leaving the overall price level roughly the same as it would be in the absence of tariffs …
… Don’t get us wrong; we are not changing our view that inflation remains a long-term problem that the Fed must be prepared to fight. We expect inflation to average 2.5%+ in the next ten years, not the 1.5% like it did pre-COVID. But shortterm risks are to the downside, and we think the Fed should temporarily focus on that.
We also think it’s important for the Fed to move gradually. The US dollar has weakened lately, and, as a result, there is little case for a drastic loosening of monetary policy. The Fed could let up somewhat on bank regulations and capital requirements, which would help the struggling bond market. And one or two rate cuts would not be excessive.
Attn global MACRO tourists … from one of the better in the business, a better than avg recap and one of MY go TOs as I catch up on what ever it was which just happened …
April 14, 2025 MS: Global Macro Commentary: April 14
USTs rally as risk appetite recovers following tariff reprieve; Fed's Waller sees potential for rate cuts; BTPs outperform after S&P Global upgrades Italy; long-end JGBs cheapen; risk-sensitive G10 FX currencies outperform; MAS eases policy band; DXY at 99.72 (-0.4%); US 10y at 4.374% (-11.7bp)
Treasuries rally led by the belly (5y: -15bp) and retrace some of the recent weakness, while SOFR swap spreads widen (10y: +4.2bp) as additional tariff reprieve supports risk-appetite (S&P 500: +0.8%).
Fed Governor Waller says the impacts of tariff inflation would likely be "temporary" and sees the potential for rate cuts this year in both the "smaller tariff" and "large tariff" scenarios that he outlines…
Finally, the covered wagon folks checkin’ in on animal spirits … and what they find ain’t pretty …
April 15, 2025 Wells Fargo: Return to the Red: ASI Turns Negative in Q1
Summary
The Animal Spirits Index (ASI) fell below zero (-0.34) for the first time since October 2023.
Every component contributed negatively to the index in March, with the exception of the yield curve (the spread between the 10-year and three-month Treasury yields).
March's print shows that tariff uncertainty has shaken sentiment, and we expect uncertainty to further weigh on the ASI in coming months.
… And from the Global Wall Street inbox TO the intertubes, a few curated links …
Liquidity is important. Not ONLY in USTs but in spread products too …
April 15, 2025 Apollo: Bid-Ask Spreads Widening in IG Credit Markets
My colleague Shobhit Gupta has calculated bid-ask spreads for investment grade (IG) bonds based on trader quotes, see chart below.
Liquid securities are defined as $1 billion-plus deals issued in the past year. Off-the-run bonds are those issued more than two years ago with deal sizes less than $900 million, and these bonds make up 50% of the IG market by count.
The chart shows that bid-ask spreads have spiked post the April 2 tariff announcement.
The gap between liquid and illiquid bonds is particularly noteworthy. In 2020, the bid-ask spread widened across the whole market. But this time around, transaction costs have increased materially more for off-the-run paper. This highlights the growing liquidity divide in the public IG market. Liquidity in on-the-run bonds has improved, but off-the-run paper has become virtually untradeable and effectively a buy-and-hold investment.
Note: Chart shows estimated bid-ask for IG bonds based on trader quotes. Liquid securities defined as $1 billion-plus deals issued in the past year. Off-the-run bonds are those issued more than two years ago with deal size <$900 million. (These bonds make up 50% of the IG market by count.) Sources: Shobhit Gupta, Apollo Chief Economist
A couple / few from The Terminal dot com … a look at investor sentiment, TP (term premium) AND a view … of S&P targets …
April 15, 2025 at 9:17 AM UTC Bloomberg: Investors Haven’t Been This Bearish in 30 Years, BofA Poll Shows
Investor sentiment regarding economic prospects is the most negative in three decades, yet fund mangers’ pessimism isn’t fully reflected in their asset allocation which could mean more losses for US stocks, a Bank of America Corp. survey shows.
Fund managers are extremely gloomy, with 82% of respondents to BofA’s monthly survey expecting the global economy to weaken. Consequently, a record number intend to reduce exposure to US equities, according to the poll.
Fund mangers are “max bearish on macro, not quite max bearish on the market,” strategists led by Michael Hartnett wrote in a note. “Peak fear” is not yet reflected in cash allocations, which currently stands at 4.8% of assets and would typically need to rise to 6%, they added.
High uncertainty surrounding US trade policy and a spike in financial-market volatility has unsettled stock investors. Respondents are a net 36% underweight US stocks in April, down from 17% overweight in February, the biggest ever two-month drop.
Source: Bank of AmericaSource: Bank of America
US equities have underperformed this year amid concern that President Donald Trump’s trade war will hurt growth, with 42% of survey respondents saying that a recession is likely in the world’s biggest economy.
The S&P 500 has bounced from this month’s low but its year-to-date 8.1% drop lags European and Chinese benchmarks. BofA strategists expect the April lows to hold in the near-term and warned that “big upside needs big tariff easing, big Fed rate cuts, and/or economic data resilience.”
There were 164 participants with $386 billion in assets under management in the global poll conducted on April 4-10.
April 14, 2025 at 11:03 PM EDT Bloomberg: Treasury term premium jumps to decade high on policy uncertainty
(Bloomberg) — The risk premium to hold 10-year Treasuries has climbed to the highest in a decade on concern the Trump administration’s unpredictable tariff policy will sap investor confidence in US government bonds.
The so-called term premium on 10-year notes climbed to 0.71% last week, a level last seen in September 2014, according to the latest data from the Federal Reserve Bank of New York. The term premium is the compensation investors demand to bear the risk that interest rates will fluctuate over the life of the security.
One of the factors pushing up term premiums is the growing unpredictability of US economic policy. An index of such uncertainty surged toward a record this month after President Donald Trump announced sweeping tariffs and then backtracked on some of them. Proposals for tax cuts and a potential need to increase the US government debt limit are also inflating Treasury term premiums…
April 15, 2025 at 5:00 AM UTC Bloomberg: It's safest to call this a temporary ceasefire US markets won’t know where to go until tariffs are settled. So look at Germany and Ghana.
… Strategic Deniability
If it might seem as though we’re spending too much time on prognosticating where the tariff conflict will go, there’s a reason. Earnings for the rest of this year, and the multiples to place on them, are critically affected by how far the tariff walls are set. Until that’s resolved, nobody much pretends to have a clue as to the stock market’s direction. There’s not much to do beyond try to work it out.
Ben May, director of Global Macro Research at Oxford Economics, has published revised assessments of the economy to take account of the concessions announced last week by the White House. But he said:
The new tariff assumptions in our forecast are slightly more severe than President Donald Trump’s campaign pledge to raise the tariff on China to 60% and to 10% for the rest of the world. Indeed, the new tariff regime is close to what many would have considered a worst-case scenario as recently as March.
He added that the last week has done nothing to resolve uncertainty. And as for Wall Street equity strategists, most assumed tariffs somewhat below this scenario, borrowing from the lesson from Trump’s first term that he dislikes antagonizing the stock market. That has forced them into desperate revisions of their forecasts, but they still implicitly expect a big rise. This is how the average year-end estimate for the S&P 500 has moved over time, as compiled by Bloomberg colleagues:
A breakdown of all the strategists contacted by colleague Jess Menton for her great piece on Wall Street’s tariff confusion shows some steep cuts — but all bar two of them still expect a gain for the rest of the year:
Perhaps the best indication of the Street’s confusion that Jess provides comes in this analysis of the total spread between highest and lowest forecast for the S&P. Since Bloomberg started collecting the data in 2000, they have never been so dispersed this late in the year:
Earnings season will reveal a lot of information to help the equity market. It always does. But until there’s some measure of certainty over whether the US is really going to press ahead with the toughest tariff regime in a century, index targets are going to involve even more guesswork than usual. So, unfortunately, we all need to brace for much more theorizing and speculating about what’s in the mind of Tariff Man.
As I continue to believe — narratives follow price — there are some which are more believable than others and this … well … was better than avg ‘click bait’ :) …
Apr 15 20252:59 AM EDT CNBC: Trump tariffs drove a Treasury sell-off — who sold the safe-haven asset?
Speculations about China unloading Treasurys as a means to hit back at tariffs levied by U.S. President Donald Trump have been raised by some.
Not everybody agrees with Beijing resorting to selling Treasurys. “China selling down Treasury holdings would effectively be shooting themselves in the foot,” said Michael Brown from Pepperstone.
The “incoherent and volatile nature” of policymaking is significantly denting the appeal of Treasurys as a safe haven, Brown added.
Should the market’s trust issues with the U.S. deteriorate, it could catalyze another wave of selloffs, said TD Securities’ Prashant Newnaha.
…Hedge funds and ‘bond vigilantes’ As the bond sell-off gained pace, hedge funds could have been forced to unwind bond-basis trades, which in turn added more fuel to the selling, said Newnaha. When brokers issue margin calls, funds could have been forced to unwind their positions by selling Treasury bonds to raise cash.
These basis trades are commonly employed by macro hedge funds and involve borrowing money to buy Treasurys while selling futures contracts tied to these bonds with the aim of profiting off the price differences.
“Bond vigilantes,” a moniker for investors who keep tabs on monetary or fiscal policies that may be inflationary by eschewing government debt or selling them also make the list of suspected sellers.
“The Bond Vigilantes have struck again,” wrote Ed Yardeni, who pointed out that recent market movements were a sign that Trump’s policies were misguided.
On top of hedge funds unwinding on positions, bond vigilantes imposing their fiscal discipline and ensuring that whatever Trump wants to do is put in check likely catapulted in the selling of UST holdings, observed Newnaha.
Monthly Treasury data usually comes with a lag, and the most recent figures released in March are from January. April data is slated to be released only in June. Given the scale of the sell-off and lack of clear and immediate figures, it’s not easy to isolate specific parties driving it and to what degree, market watchers told CNBC.
But undergirding all the conjectures is the perception of diminishing confidence in U.S. policies.
The “incoherent and volatile nature” of policymaking is significantly denting the appeal of Treasurys as a safe haven, said Pepperstone’s Brown.
America’s policy flip-flops with regards to tariffs has undermined confidence in U.S. assets that has led to a weakening in the U.S. dollar which would typically be a beneficiary of investors looking for safe haven assets.
“Should the market’s trust issues with the U.S. administration deteriorate further, then this could be the catalyst for the sell-off to take on its next leg,” said Newnaha.
And while this set of data was incorporated above and by YESTERDAYS price action, straight from the source / horses mouth …
Median inflation expectations increased by 0.5 percentage point (ppt) to 3.6 percent at the one-year-ahead horizon, were unchanged at 3.0 percent at the three-year-ahead horizon, and decreased by 0.1 ppt to 2.9 percent at the five-year-ahead horizon.
Consumers’ year-ahead expectations about their households’ financial situations deteriorated in March, with the share of households expecting a worse financial situation one year from now rising to 30 percent, the highest level since October 2023.
Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—jumped by 4.6 ppts to 44.0 percent in March, the highest reading since April 2020.
The mean perceived probability of losing one’s job in the next twelve months increased by 1.6 ppts to 15.7 percent, the highest level since March 2024. The increase was largest for respondents with annual household incomes below $50,000.
I think there's some one pretending to be you on Substack...they followed me and say they have a new system for trading...I think this could be a scam..
I think there's some one pretending to be you on Substack...they followed me and say they have a new system for trading...I think this could be a scam..