Ed Bradford
@fullcarry.net
US government bond trader since '93 with the usual stints along the way at primary dealers and HFs. Now on my own. Pseudonym
This is the longest stretch UST 30s (long bond) has been above 5% since 2007. What a shame if we waste this breakout without a 5.5% print
Not a bad place to hedge or add to hedges with Sept hike odds drifting lower to 60% this morning. Hedge demand should pick up later in the week with NFP on Friday and CPI next week
Guess who said this? No it wasn't Warsh but it is a current Fed official
US Treasury considering deploying TGA in the repo market..... via Bloomberg
Smart move by Japan's MOF to intervene (assuming) after Fed passed on a rate hike.
It has been fashionable in the post-QE era to attribute every long-end foray above 5% to some policy error, whether fiscal or monetary, but if anything long is still rich on the curve and has room to head higher. Long term 30s spread to overnight rates
Clearly USTs need more of an uncertainty premium going forward. Too much angst the day of an FOMC decision
If you want a hike today go to the White Mountains. Odds low you get one from the Fed at this meeting
USTs rationally IMO positioning for no hike tomorrow. With crude prices down another 5% and 1-year inflation swap down to 1.85, Fed has time on their side. 2s obviously best long if no hike but before announcement belly is a safer bet in case.
With 1-year inflation swap printing below 2%, Fed should pass on hiking this week
Bunched up front-end auctions Monday (2s & 5s) and Tuesday (7s) will keep the pressure on before the main event on Wed (FOMC). Sell side continues mostly projecting no rate change but market odds still a material 30-40%
Housing demand continues to grind along near the lows--mortgage lock from the level shift up in rates, weakening demographics from immigration + millennials completing their homebuying years, and lack of affordability make it hard to see where momentum will come from
Given the post-COVID inflation experience, its strange how little inflation risk the markets are pricing. 30y inflation swap is literally pinned to the Fed's inflation target (adjusting for PCE-CPI wedge). Same is true of 30y breakevens
Obviously a new era Fed. Don't remember the last time the rate decision of an FOMC meeting was this uncertain. With odds closing in on tossup, if nothing else it will be fun and exciting. July hike odds:
FWIW less forward guidance does mean more aggressive hedging so no surprise FFQ6 pricing higher hike odds than sell-side
Notable that the 1-year inflation swap remains subdued despite the resurge in crude prices. Last time oil price was at this level ($87), the swap was north of 2.80 vs 2.03 currently. This buys the Fed some time so no July hike IMO
Despite the recent resurge in crude prices, 1-year inflation swaps have dipped below 2%
