Market Insights – July 23, 2018

July 23, 2018 Chatham Financial

SOFR Swaps Begin Trading

View this week's rates.

Prior Week Summary

Last week began with relatively quiet trading conditions, as fixed income markets have been remarkably stable to start the summer. The 10-year Treasury note, for example, has traded within a 7 basis point range for the entire month of July based on end-of-day closing values. The general summer doldrums were shattered later in the week by a shock to the long-end of the Treasury curve, which saw the spread between 5-year notes and 30-year Bonds increase 5 basis points on Friday. The two standard deviation steepening move on the long-end was attributed to a somewhat confused tweet made by the President expressing his dissatisfaction with the expected path of monetary policy, and its implication for the market price of the dollar relative to the currencies of our major trading partners.

In other news, the market continues to make important strides in the eventual transition away from LIBOR toward risk-free-rates as the first SOFR swaps were traded, and cleared on LCH last week. While demand from the broader market is still in the nascent stages of development, market infrastructure related to the eventual transition is moving forward at a healthy pace.

The Look Forward

The market has a relatively active data calendar for economic updates this week including updates on the residential housing market, manufacturing activity, GDP and consumer confidence.

 

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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