A hint of the credit crunch to come
May 8, 2023
–The Fed’s SLOOS is out today, I believe release time is 2:00 EST. The Sr Loan Officer Survey on Bank Lending Practices. This is a quarterly report, the last one was released Jan 6. From that report:
“Regarding expectations for credit quality—as measured by delinquencies and charge-offs—major or significant net shares of banks reported expecting a deterioration in credit quality across all loan types over 2023.”
–There will likely not be an improvement in terms of tone. A BBG interview with Hugh Hendry and Chris Whalen right after the FOMC meeting last week had this line from HH: “We are on the verge of a catastrophe which will rival 2008.” Hendry suggests that bank depositors will be “gated”. [It won’t happen].
–Friday saw yields back up, with tens up 6.3 bps to 3.44% and 30s +4 bps to 3.755%. The 2y yield surged 18 bps to 3.922%. NFP was stronger than expected 253k and the unemployment rate printed at 3.4%, an historic low. Buyer of 50k 2QH 9500/9475ps for 1.5; settled 1.25 ref underlying SFRH6 at 9720. The six month calendar SFRU3/H4, Sept’23 to March’24 settled Friday at -98.5 (9531/9629.5). On Thursday it was -106. Of course the curve has been inverted for some time, but a near spread which is basically forecasting a cut of 100 bps after another robust employment report is rather incongruous.
–I haven’t been watching bitcoin particularly closely but this morning the May future is down 1800 at around 28k. Every time I skim the news, I see another problem cropping up for Binance. Might be getting close to critical mass in terms of failure.
