Williams tempers Logan
January 11, 2024
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–CPI expected 0.2 m/m and 3.2% yoy vs 3.1 last. Core expected 3.8% from 4.0 last.
Jobless Claims 210k. Budget Statement. 30y auction.
–NY Fed’s Williams pushed back on expectations for a near term decrease in QT, saying there’s currently “no signs of adverse effects on market functioning”. He noted that the FOMC said “…it intends to slow then stop the decline in the balance sheet when reserve balances are somewhat above the level it judges to be consistent with ample reserves” adding, “…we don’t seem to be close to that point.”
–Yesterday USH settled 122-05, down 8, but this morning it’s up 17 at 122-22, even as thirties are auctioned this afternoon.
–Option plays in SOFR continue to target upside. For example, a buyer of about 45k SFRH4 9606.25/9612.5cs for 0.75 (Settled there vs 9493.0). Open interest in March SOFR calls rose 95k on the day. There was also a seller of about 20k SFRG4 9500c at 5.0 (settled 4.75). Upside plays on SFRZ3 prior to option expiration ultimately fizzled, but hope springs eternal (for a crashing economy).
