Market Insights – June 11, 2018

June 11, 2018 Chatham Financial

The Eyes of the World

View this week's rates.

Prior Week Summary

The fixed markets sold-off last week in advance of a very active few days for news relating to international diplomacy, global central banking and another wave of Treasury supply. 10-year Treasury notes again flirted with the 3% level, before falling to end the week at 2.95%. On the economic data front, the week began with April Factory orders falling 0.8%, giving back some of the 1.7% gain in March, with an indication that the amount of unfilled orders continues to increase. Separately, the Commerce Department reported that our Trade gap has narrowed to a seven-month low as exports climb. The trade gap declined 2.1% to $46.2 billion in April from a positively revised $47.2 billion in March. Export activity rose by 0.3% to $211 billion in April led by gains in fuel, food and agricultural products.

The market is approaching this week’s FOMC meeting with a near certain expectation of a 25 basis point hike, as Fed Funds Futures indicate a 91% probability of a hike according to calculations from the CME’s Fedwatch tool.

The Look Forward

The market will compete for attention this week with any news to come out of the Trump-Kim summit in Singapore, updates from our G7 trading partners, as well as the beginning of the World Cup Tournament. During past World Cup tournaments, liquidity and market activity has tended to dry up as market participants become distracted by the games. In addition to the Fed meeting in the middle of this week, the market will need to absorb nearly $200mm in Treasury supply. Additionally, updated economic reports are expected for CPI, Industrial Production and Retail sales.

 

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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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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