Another Important SOFR Milestone
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.
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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