Lighten up on risk
May 1, 2024
*************
–Full day. Treasury announces debt issuance composition at 8:30 EST. (Recall that Nov 1 was a surprise shift favoring t-bills, which helped long coupons rally in price). ADP, and JOLTs give clues on the labor market. ISM Mfg expected 50.1 from 50.3. Then the FOMC/ press conference.
–Yesterday the market reacted to a surprise ECI of 1.2% (expected 1.0). Yields higher, with 2’s at a new high for the year 5.041% (+4.1 bps) and everything else pressing against recent highs. Tens ended up 7 bps at 4.682%. Other data indicating economic malaise didn’t help to support fixed income. Consumer Confidence tanked to 97, lowest since covid, expected 104. Chgo PMI just 37.9 vs expected 45.0.
–In 1987 bond yields kept climbing while stocks blithely danced to new highs. Then came Black Monday with a single day drop of 22% in the Dow. Couldn’t happen now. It’s not Monday.
–On the SOFR strip slight new lows in reds to deferred, however, 2/10 at -36 and 5/30 at +7 bps are both holding sideways ranges. Concern about Powell leaning hawkish, but we already know that. SFRZ4 settled 9494 or 5.06%, down 7.5 bps on the day. That’s just 27 bps lower than the current EFFR of 5.33%, so the market is pricing only about one ease going into year end. Of course, the other policy tweak to consider is the slowdown in QT with expectations that MBS will still be reduced $35b per month, but treasuries shaved to $30b from $60b.
–USD continues to strengthen which creates tight GLOBAL financial conditions. DXY is near the high of the year. (Anti-dollar) bitcoin is free-falling to 57k this morning from 75k in mid-March.
