U.S. yields down and bull steepening with the 2Y off 4bps to 4.86% and 10Y off a bp to 4.01% with the move on the heels of yesterday afternoon's down grade of U.S. debt to AA+. Much like 2011 when S&P downgraded the U.S. paradoxically there is a flight to quality and yields actually fall (though in this case nothing like 2011). If you want to know whether the stock market will care about the downgrade for long just google LK-99 and you'll get your answer. Practically speaking the downgrade shouldn't impact most investment mandates or collateral posting eligibility as often Treasuries are directly written in as eligible irrespective of rating (whether or not over time this will change some collateral models, we'll see). Whether Fitch is correct about deficits, etc. seems besides the point to me. If the U.S. isn't AAA how can anything else be AAA? Can't the govt regulate or tax some corporation or project to oblivion? Anyway, "There's a reason dealers don't like fitch" (in relation to inclusion of Fitch ratings and downgrade triggers). Speaking of Treasury we get the much awaiting quarterly refunding announcement at 830am where it's likely there will be increased coupon issuance sizes. We also get ADP and after the close the Brazil rate decision.
"We think they are days from failure. They think it is a temporary problem. This disconnect is dangerous."
Subscribe to:
Post Comments (Atom)
-
Arctic Wisdom Remember your job is to identify the book and post your answer. You can also simply share any thoughts in the comments. Today’...
-
I see no a priori way to answer the question of whether a central-bank policy of holding the money supply constant, limiting the liquidity...
-
One Big Beautiful Blog Why is this blog One Big Beautiful Blog? Well the plan for this blog was to write "the definitive guide to finan...
Daily Economic Update: June 6, 2025
Broken Bromance Trump and Xi talk, but Trump and Musk spar. I don’t know which headline matters more for markets, but shares of Tesla didn’...
ADP +324K v. +190K, now rates up, 2Y at 4.90% and 10Y at 4.04%
ReplyDeleteFrom ADP's Chief Economist
"The economy is doing better than expected and a healthy labor market continues to support household spending. We continue to see a slowdown in pay growth without broad-based job loss."
"Job stayers saw a year-over-year pay increase of 6.4 percent, down from 6.6 percent in May. For job changers, pay gains slowed for the 12th straight month, to 11.2 percent, the slowest pace of growth since October 2021.
Auction sizes out. Treasury boosts the size of the sale of longer-term debt for first time in 2.5 years. https://home.treasury.gov/news/press-releases/jy1671 increasing total issuance by $7bln and indicating likely need to continue to issue more coupon securities in the future
Yields back down some on the news, 2Y at 4.90% and 10Y at 4.04%
NY Fed on "Why Do Forecasters Disagree about the their Monetary Policy Expectations?" Reminds me of my recent LI article that "Differences in opinion make a market." https://www.linkedin.com/pulse/powells-pivot-island-robert-mangrelli
ReplyDeleteWhile dispersion fell during the pandemic in 2020-21, as dealers expected close-to-zero policy rates for some time, since 2022 it has increased to over 2 percentage points, the most in ten years....the level of disagreement relative to its historical norm, and shows that over the past year it has been pronounced across multiple horizons
Dealers’ expectations for the monetary policy path have diverged in recent times. Given uncertainty about how the Federal Open Market Committee (FOMC) would respond to a historically rare combination of persistently high inflation and low unemployment, one might expect dealers’ disagreement to stem at least in part from divergent views on the Federal Reserve’s reaction function. We find, however, that it is the economic outlook that accounts for the lion’s share of the increased disagreement.
https://libertystreeteconomics.newyorkfed.org/2023/08/why-do-forecasters-disagree-about-their-monetary-policy-expectations/