A basic building block of funding market dynamics is not only expected rate movements but the time value of money, i.e., the curve shape. Normally, you would expect a steeper yield curve to be consistent with stronger economic growth. In terms of dollar funding, you can package eurodollar trades (either bundles or packs of various “colors”) to buy short and [...]
That gold prices are moving within range of the year’s lows is not at all surprising. We are in the midst of the fourth discrete episode of collateral/liquidity problems in interbank, wholesale “dollars” spilling over into gold markets. It is also not unexpected to see October 23 recur as an inflection in these indications. Gold forward rates ticked higher for [...]
The taper-driven bond selloff in May/June related to tightening in eurodollars and funding markets. As we know now, dollar conditions were extreme in some cases, leading to desperate turmoil across the globe. From the TIC flows, the pace of selling of dollar assets by foreign holders was epic back in June. What that tells us is foreign holders were unable [...]
The credit market selloff that began without much notice has begun to draw attention. While there is some attribution to various FOMC members and their renewed hints at tapering, the current move began weeks before and spread quickly to a broad spectrum of dollar-related markets. Treasuries usually get most of the attention but it all begins in funding. While the [...]
Don’t look now, but US dollars are tightening again. The dollar calm that swept over markets since September 4 appears to have reached a nadir on October 23. Eurodollar markets in late October only moved very slightly, but enough to keep futures from rolling with the calendar, and thus indicating that risk positions and balance sheet expansion might be changing. [...]
Retail flows, in my analysis, having absorbed any minor trepidation from the debt ceiling and shut down, are seemingly positioned as if taper and monetary policy are back to last year’s unlimited promises. That may very well be the case, though it does not appear as if institutional positioning agrees. In my mind, the MBS and UST portions of the [...]
There has been quite a bit of buying interest in the treasury markets the past few days, bringing the 10-year yield back down toward 2.60%. This trend since September 4-5 has only partially retraced the dramatic selloff since early May, but has at least moved the benchmark significantly away from the 3% psychological level. It’s a move that has been [...]
The potency of QE is theoretically driven by how it is expected to influence economic agents’ perceptions of inflation. The concept of negative real interest rates after hitting the zero lower bound of nominal interest rates (ZIRP) is believed to nudge the behavior of participants in the economy to spend and borrow more as saving becomes relatively more expensive and [...]
Following up on the repo warning from two weeks ago, we have gotten confirmation in the form of repo fails. In the US treasury repo market, the primary liquidity conduit in the US dollar wholesale money, we have been seeing indications of dramatic shortages in available collateral for some time. It was first noted back in March in the week [...]
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