Market Insights – April 2, 2018

April 2, 2018 Chatham Financial

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View this week's rates.

Prior Week Summary

The last trading week of the first quarter came to a close with little in the way of economic updates as the holiday-shortened week ended on Thursday afternoon in advance of the Easter holiday. The trend of curve flattening continued over the course of the first three months of the year, with the spread between the 2-year and 10-year LIBOR swap rates falling to just 22 basis points at quarter-end. In Treasury markets, the spread between the 5-year and 30-year part of the curve starts the second quarter at its flattest level in over a decade, with many in the analyst community expecting continued pressure of the slope of the curve.

On the data front, personal income growth grew at a 0.4% pace in February, matching the gain from the January period. Inflation, as measured by the PCE deflator, rose 0.2% in February and 1.8% on a year-over-year basis. The increase in the year-over-year inflation metric for the Fed’s preferred measurement certainly seems to bolster their case for a continuation of their tightening campaign.

As of this writing, there is roughly a 90% chance for another 25-basis point hike at the June meeting, up from roughly 40% at the beginning of the year.

The Look Forward

The second quarter starts with an active data calendar including the March jobs report on Friday. The consensus expectation is for a gain of 187,000 jobs and a reduction in the unemployment rate to 4.0%.

 

Rates Snapshot

Sources: Bloomberg Finance L.P., (Treasuries) Chatham Financial (Swap Curves), FHLB Boston, Chicago, Dallas, Des Moines for FHLB Advance Rates. Wells Fargo Brokered CD Indications.

 

Market Implied Policy Path (Overnight Indexed Swap Rates)

Source: Chatham Financial

 

Fixed Income Snapshot

Source: Bloomberg Finance L.P.

 

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit http://www.chathamfinancial.com/legal-notices/.
Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions.

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