LIBOR Curve Inverts
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.
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
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