About face
February 25, 2022
–Reversals yesterday were some of the most astonishing I’ve ever seen. Russia’s full scale invasion of Ukraine elicited panic yesterday morning, but stabilized mid-day. SPX was down 2.6% at the low of the day but then closed up 1.5%. Yields plunged but then came back near unchanged, with tens -1.1 bps at 1.965% at futures settlement. While Fed officials said that hikes are still coming, the March meeting is now priced for 25 bps rather than 50 as April Fed Funds rose 5.5 bps to 9963.0. (50 bps would be 9942 and 25 would be 9967). The two-year note reacted with a plunge of 5.6 bps to 1.542%.
–Whenever I hear something like ‘massive cyber attacks’ (which apparently was one of the options presented to Biden) it makes me think “HOARD”. That means cash and non-perishables. Ukraine has vast natural resources. It’s amazing to me that reversals gathered steam as Biden spoke, but it appears as if markets are gratified that the US is staying out and that any disruptions will only be temporary. Biden spent as much time trying to reassure the US public that costs would not increase as he did outlining plans to end international aggression. Which is more important?
–Ten year treasury to inflation-indexed note spread closed 261 bps, a new recent high. Cycle high has been around 277 from mid-November. There is a lot of attention centered on the inflation report slated for March 10, the week prior to March 16 FOMC, with some concerned it could print 8%. Powell gives semi-annual testimony on March 2 and 3 next week.
