No Ceiling, just open sky
May 30, 2023
–After closing lower in 11 of the last 12 sessions, SFRZ3 is getting a small bounce. Settled 9501.5 on Friday, now 9507.5. On March 8 the settle was 9446.5, the high settle a week later, following SVB was 9616.5. This latest sell-off started with a high close of 9579.5 on May 10, so on a settlement basis a drop of 78 bps. The Fed’s March SEP pegged year-end FF target at 5.1%; Friday’s settle was 4.985% (getting close). The end-of-2024 estimate in SEP is 4.3%, and Dec’24 SOFR settled 9647 or 3.53%. SFRZ3/Z4 is now the most inverted one-year calendar spread at -145.5.
–The debt ceiling agreement has sparked buying in stock index futures, though it also means a withdrawal of liquidity as the TGA is built back up (from fumes to $5-600 billion). Additionally the end of student loan forbearance is, according to McCarthy, going to result in $5 billion a month being transferred to the government. I doubt the number is anywhere near that high in reality, but it’s still a liquidity suck on the economy and consumer spending. 2/10 treasury spread at a new low of -75 bps (-78.5 this morning) is projecting much slower growth.
