Market Insights – February 26, 2018

February 26, 2018 Chatham Financial

Heavy Treasury Issuance and a Less Hawkish Fed

View this week's rates.

Prior Week Summary

It was a relatively light week for economic data and flows were largely driven by a heavy debt issuance calendar. The market absorbed $258 billion of Treasuries last week, the largest amount of paper ever auctioned in such a short time relatively well. Indeed, rates increased on the front and very long-end of the curve, while the belly of the curve fell. The yield spread reflected a 9 bps compression in owning the 10-year Treasury note, financed with equal notional of 2-year notes and 30-year bonds, highlighting the relatively strong yield curve twist that took place last week.

The large amount of supply to hit the market has helped push the spread between LIBOR and OIS to nearly 40 basis points at the 3 month point, which puts the spread roughly in the 80th percentile of weekly data points over the last decade. In a similar context, several market commentators pointed out last week that short positioning in Treasury notes via the futures market is now at its most elevated point in the history of the data series. These data points certainly seem worth mentioning in our high level weekly commentary, as market sentiment and investor flows appear to be relatively one sided currently.

On the economic data front, the FOMC meeting minutes were interpreted to be less hawkish than the market had anticipated, stating that “Participants expected that with further gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labor market conditions would remain strong.”

The Look Forward

The data calendar is back in play with a number of Tier 1 data releases expected this week, including the February ISM manufacturing survey, consumer confidence, and the personal income and spending report. The market is also likely to focus on Chairman Powell’s first major speech to the House Financial Services Committee tomorrow.

 

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.

 

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Market Insights – March 5, 2018
Market Insights – March 5, 2018

It was an interesting week for market watchers as Mr. Powell made his first remarks to Congress in his posi...

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Market Insights – February 20, 2018
Market Insights – February 20, 2018

The economic data calendar was busy last week led by a stronger than anticipated CPI report.

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