SOFR Swaps Begin Trading
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.
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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