QRA and FOMC
January 31, 2024
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–Today’s news includes Treasury Quarterly Refunding Announce at 8:30, FOMC at 2:00 followed by 2:30 Press Conference.
In addition, ADP at 8:15, ECI at 8:30, Chicago PMI 9:45 (all EST).
–Yesterday featured a pre-data buy of 51k TYH4 111.25/110.25ps for 21, settled there ref TYH4 111-20. JOLTs higher than expected 9026 vs 8750. (However, UPS lays off 12k and there have been other significant layoff announcements). Employment data is on Friday.
–At futures settlement (but prior to GOOGL and MSFT earnings) the curve had flattened significantly as odds for a March ease were trimmed slightly. For example, FFJ4 was sold down to 9477 and settled 9477.5 (-1.5) or 5.225, closer to the current EFFR of 5.33 than an ease of 5.08. SFRH4/M4 settled at a new recent high of -40 (9485.5, -2.0 vs 9525.5, -4.0). As the attached chart shows, the red/green SOFR pack spread fell almost 5 bps to -11.75. In treasuries, the 2y yield rose 3.7 bps to 4.357% while 30s sank 5.2 bps to 4.278. I marked tens at 4.057% at futures settle, but down another couple of bps later in the electronic session. All indicative of a slight decline in confidence regarding a March cut.
–Disappointment with GOOGL’s results (and MSFT to a lesser extent) has caused a pullback from all-time-highs. Nasdaq futures currently -1.2% and GOOGL is -5.7% pre-open.
–Fed still likely to set the table for a March ease as inflation levels have neared target. Real rates are significantly positive. 5 and 10 year inflation indexed note yields have been around 1.75% for a month and a half. QT trimming also will be a topic at the press conference, likely to be implemented after the March FOMC.
