Market Insights – June 18, 2018

June 18, 2018 Chatham Financial

The Plot Thickens

View this week's rates.

Prior Week Summary

It was an active week for financial markets that saw the FOMC raise their target range for federal funds by 25 basis points to a range of 1.75% – 2.00%. Concurrent with the increase in the funds rate, the Committee also increased the interest paid on excess reserves by a smaller amount (20 basis points) to help push the effective fed funds rate closer to the mid-point of the target range. The updated Summary of Economic Projections detailed that Committee members expect to raise the target rate another 50 basis points this year, presumably at the September and December meetings.

The Committee stated that it “expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term.”

In other economic news, measures of inflation increased roughly as expected, with CPI increasing by 0.2% in May while producer prices advanced 0.5% in May, supporting the Fed’s hawkish view. Similarly, retail sales put in a strong showing, gaining 0.8% in May, after gaining an upwardly revised 0.4% in April.

The curve continued its relentless flattening trend, with the spread between 2-year and 10-year Treasury notes falling another 6 basis points week-over-week to a spread of 37 bps.

The Look Forward

The market has a relatively small amount of economic data to comb through this week, with updates expected on the state of the housing market as well as the manufacturing sector.

 

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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Market Insights – June 25, 2018
Market Insights – June 25, 2018

It was a relatively lackluster week for the limited amount of data that was released. Most of the housing d...

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Market Insights – June 11, 2018
Market Insights – June 11, 2018

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