Market Insights – March 12, 2018

March 12, 2018 Chatham Financial

Strong Jobs Reports Weighs on Rates

View this week's rates.

Prior Week Summary

Rates rose over the course of the week, led by a strong jobs report. According to recent data provided by the Labor Department, American businesses added 313,000 jobs in February while the jobless rate remained unchanged at 4.1%. Importantly, the labor force rose by the largest amount in nearly a decade, gaining over 800,000 last month which may indicate that there is still room for the labor markets to tighten further, even with unemployment hovering just above 4%. The gains were mostly positive across the different industries in the survey, with noteworthy increases in the construction, transport and the broad goods producing sectors. The report also detailed a strong increase in the participation rate for men aged 25 to 54, which increased to nearly 90% in February, the highest level of that metric in nearly eight years.

Average hourly earnings rose 0.1% in February, bringing the year-over-year increase back down to 2.6%, which may ease some of the concern from last month’s report about the pace of wage inflation. The average work week was reported to have risen to 34.5 hours, an increase of 0.1 hours from the January report.

In other news, the Federal Reserve Bank of New York published a time series of the volume-weighted mean rate of primary dealers’ overnight Treasury general collateral repo borrowing activity going back to 1998 on their public website. The data may help market participants gain greater understanding of how the new SOFR index may react in different interest rate and monetary policy environments.

The Look Forward

There is a lot of market moving data expected this week, beginning with CPI on Tuesday, and PPI on Wednesday. There will also be a heavy supply of Treasuries to hit the market with $96 billion of T-bills, $28 billion of 3-year notes and $21 billion of 10-year notes.

 

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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