Regional banking issues are… contained
March 1, 2024
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–NYCB back in the news, reporting an additional $2.4 billion hit as the fallout from the regional banking episode continues in a slow burn, a year later. It’s more controlled, but underlines weak CRE valuations and lingering effects of deposit flight.
–China’s Mfg PMI down for a fifth month, as expected at 49.1. Today’s US Mfg PMI expected 49.5 from 49.1. Fed’ Kugler speaks at 2:30 today on the Fed’s dual mandate. Powell in front of Congress next week on Wed and Thursday. Employment report on Friday.
–Somewhat odd trade given that easing prospects have been pushed further forward in time: new buyer of 35k SFRM4 9550/9575cs for 1.0 (settled there ref 9489). Perhaps systemic banking issues are going to flare up once again. In any case, if I needed upside, I might look at spending an extra 0.5 for the 9550/9600cs, which settled 1.25 (but was offered 1.5). Current FF are 5.25 to 5.5%; this call spread would need about 100 bps worth of cuts to play, but using the easing models of 2001 and 2008, it doesn’t seem to be a completely outlandish scenario, though there are only 3.5 months to go.
–Yesterday’s PCE data were as expected , leading to relief rally. Net changes across curve were small. Vol continued to compress, as shown below.
–Just an example of vol slide over the week in SOFR. I am just looking at contracts from SFRZ4 to SFRH6.
The futures settlements on Friday, Feb 23 and yesterday Feb 29 were nearly identical as shown in left columns. The atm straddle prices are immediately following, showing declines of 4-6 bps over those few days. and down 3 or more in midcurves.
From 2/23 to 2/29
Z4 9551.0 9550.0 84.50 to 78.00
H5 9579.0 9578.5 104.25 to 98.00
M5 9601.5 9602.0 118.50 to 112.50
U5 9618.0 9619.0 127.75 to 122.75
Z5 9628.0 9628.5 135.35 to 130.75
H6 9632.0 9633.0 140.75 to 135.75
mids
H5 30.0 to 25.0
M5 64.5 to 61.5
U5 82,5 to 79.5
Z5 97.5 to 94.5
