“Sound and resilient” or downed and deficient ?
May 9, 2023
–Yields rose Monday in a quiet session. The Fed’s Sr Loan Officer survey was met with a yawn, though it pretty much confirmed that credit is tightening across every sector. The ten year rose 7.8 bps to 3.52% with auctions of 3s today, 10s Wednesday and 30s Thursday. The curve had a small bias toward deeper inversion, with 2s +8.7 bps to 4.01%. Reds -8, greens -6.125, blues -4.875. SFRH4 was the weakest SOFR contract at 9619, down 10.5 on the day.
–Besides the Sr Officer Survey, the Fed released a financial stability report. I only skimmed the Salient Near-Term Risks on page 61, with the following Summary: 1) Persistent Inflation and monetary tightening 2) Stress in banks and other financial institutions 3) Commerical Real Estate 4) Geopolitical 5) Debt Limit.
I don’t think it takes a financial wizard to SEE the risks, but the Fed’s job is to head them off at the pass. That’s where things have gotten a bit snarled.
https://www.federalreserve.gov/publications/files/financial-stability-report-20230508.pdf
–FFM3 and FFN3 both settled 9492.0, exactly at the new EFFR or 5.08%. FFQ3 settled 9499 (-3 on the day) or 5.01%, so easing is still being priced, but less aggressively so. SFRM3 9493.25^ settled 20.25 ref 9493.0. As long as the Fed sits idle at the June meeting, as prophesied by FF contracts, then the final settle should remain within the breakeven parameters of the straddle; not enough play for the July meeting. Unless: inflation is high, more banks fail, CRE loans go bad….etc.
