Market Insights - December 3, 2018

December 3, 2018 Chatham Financial

LIBOR Curve Inverts

View this week's rates.

Prior Week Summary

The minutes for the November FOMC meeting were released last week and suggested that the Fed remains on its current trajectory of targeted increases in the Fed Funds rate while keeping an eye of the risks these hikes may have on the prospects of continued economic growth. A number of those on the committee expressed their concern that the federal funds rate might currently be near its neutral level and that continued increases in the target rate could serve to put downward pressure on inflation expectations. The committee also commented on the tightening financial conditions associated with declining equity prices, rising borrowing costs and an appreciating dollar. In the committee’s view, financial conditions remain accommodative relative to historical averages.

The dovish leaning of the minutes factored into the markets re-pricing expectations for potential future rate hikes. As of this writing, there is only one additional rate hike priced in after the December meeting, down from three a few months ago. It is also worth pointing out that the LIBOR swap curve is now inverted between the 3-year and 5-year maturities, with a one basis point negative spread between the rates.

The Look Forward

The market will be closed on Wednesday to allow Americans time to mourn the passing of former President George H.W. Bush. The marquee economic report of the week will be the release of the November payrolls report on Friday. Fed Chairman Powell had been scheduled to speak to the Joint Economic Committee on Wednesday, and it is unclear when it may be rescheduled given the national day of mourning.

 

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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