Ticking Time Bombs
August 11, 2023
–Treasuries enjoyed a brief rally after inflation data came out slightly better than expected 3.2% yoy with Core 4.7% yoy. However, going into and especially coming out of the 30y auction there was nothing but selling pressure. Blame was laid at the foot of the gov’t budget statement…really no surprise it’s gushing red ink, but the Kobeissi letter notes just INTEREST in July was $73.3 billion and YTD interest is $726b. Big numbers.
https://www.fiscal.treasury.gov/files/reports-statements/mts/mts.pdf
–Just take a look at the most recent yoy Tax Receipts vs Outlays
Receipts / Outlays
May 22 389b 455b
May 23 307b 548b
June 22 461b 549b
June 23 418b 646b
July 22 269b 480b
July 23 276b 496b
In July tax receipts are finally slightly higher than in July 22, but in all cases, expenditures are higher yoy. By a lot.
No es bueno.
Of course, headlines splashed across the internet this morning are that Biden is calling the US budget deficit China a ticking time bomb. Perhaps true, but I’m not sure how constructive it is.
–In any case, 5s, 10s and 30s added 7.3, 7.3 and 6.3 bps in yield with 30s ending at 4.235 following the auction result at 4.189%. Ten yr ended 4.078%. SOFR curve steepened, with reds -5.5, greens -8.5 and blues -10.375. However implied vol was lower across the curve. For example TYU 111.5 atm straddle settled 1’27 Wednesday, was 1’22 pre-CPI and 1’19 immediately after, with the new atm 110.75^ settling 1’17.
–Today’s news includes PPI expected 0.2 m/m and 0.7 yoy. Core 2.3% from 2.4%. Oil benefit pretty much over as the range has been between 72 and 82 for the past year, and now at upper end.
