Market Insights – July 30, 2018

July 30, 2018 Chatham Financial

Another Important SOFR Milestone

View this week's rates.

Prior Week Summary

Last week was relatively busy with economic updates, including the release of the much anticipated second quarter GDP figures. While the market was already expecting a strong quarter due to the swing in trade flows relating to the anticipated future tariffs, the administration removed all doubt by touting the strength of the numbers in advance of their official release. Indeed, President Trump suggested in a speech that “you’ll have very big numbers tomorrow”, while the White House Economic Council guided the market to expect “very good economic growth numbers tomorrow” during a scheduled media appearance. Along those lines, the Bureau of Economic Analysis announced on Friday morning that the second quarter advance reading of GDP grew 4.1%, after gaining an upwardly revised 2.2% in the first quarter.

It will be interesting to see how sustainable this growth trajectory is, given the potential for some of the drivers to be one-time in nature. While the swings in net exports, the large drop in inventories and the surge in consumer spending may mean-revert over time, it is certainly encouraging to see strength in some of the more stable underlying growth engines.

In other market news, it seems that we have an important milestone to report relating to SOFR almost every week. The announcement from a major market participant issuing $6 billion of senior unsecured floating-rate debt tied to the new index is the most important milestone thus far. It is hard to overstate how important the existence of issuance of this magnitude will be to the early development of this new market.

The Look Forward

The market has a relatively active data calendar for economic updates this week including the July employment report expected on Friday morning.

 

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.

18-0185

Previous Article
Market Insights – August 6, 2018
Market Insights – August 6, 2018

Last week saw a number of important data releases come and go with relatively little market volatility.

Next Article
Market Insights – July 23, 2018
Market Insights – July 23, 2018

Last week began with relatively quiet trading conditions, as fixed income markets have been remarkably stab...

×

Subscribe to Chatham's weekly Market Insights

First Name
Last Name
Company
!
Thank you!
Error - something went wrong!