Less Parking On The Eccles Dance Floor?
This AM, May 15th... the three FX pairs mentioned in Chasing The Dragon? all testing largely positive (+) for the base JPY/CNY; JPY/USD and USD/CNY...
Confirming bonds getting a large bid, oil getting clubbed, Europe down big, and US futures staring down big. Then at 6:30AM and again at 8:30AM EST, somebody flipped that switch the other way?
Quick review... Monday May 13th saw the largest YTD decline in the Nasdaq and indices in general. The following session May 14th - Long run 2 - 30yr sold off, yields up. 1yr and under "short run on the money" getting the bid, yields down.
In the last week 5yr ICE swap rate -10bps; 10 yr -7bps which means lower rate/growth expectations moving forward. The current contraction, liquidity squeeze and market sell off goes back to at least the end of March...
What market making might be served by these repeat offenders?
To go along with the Eurodollar, Swap Rates and Swap Spreads, above witness the choked up bundle of an inverted Treasury yield curve. Coming full circle and speaking of inversion and Swap Spreads trending negative of late....
Trebek queries, as long as LIBOR rates are above repo this is a risk free arb? NYFRB window repo at 2.25 to 2.35, BGCR/TriParty at 2.35 and GCF repo at 2.43.
SOFR at 2.38, ON Libor at 2.34; 30 day Libor at 2.43 and 90 day Libor at 2.52. What is becoming a limited "few and the proud" still able or willing to arbitrage this?
Hint: ask the man at the window who seems to be flipping the light switch on and off for the Eccles dancefloor, because perhaps there is more or less? or...
More to come... In The Long Run, How Long? Stay tuned, no flippin
Confirming bonds getting a large bid, oil getting clubbed, Europe down big, and US futures staring down big. Then at 6:30AM and again at 8:30AM EST, somebody flipped that switch the other way?
Quick review... Monday May 13th saw the largest YTD decline in the Nasdaq and indices in general. The following session May 14th - Long run 2 - 30yr sold off, yields up. 1yr and under "short run on the money" getting the bid, yields down.
In the last week 5yr ICE swap rate -10bps; 10 yr -7bps which means lower rate/growth expectations moving forward. The current contraction, liquidity squeeze and market sell off goes back to at least the end of March...
As of March 29th, only the 180 day note 2.443, 10yr 2.496 and 30 yr 2.890 are above effective Fed Funds rate 2.43, placing 30 and 90 day notes and all bond tenors from 1 to 7 yrs below EFFR. Parking reserves, excess or otherwise at a risk free and unencumbered 2.40 would seem to be a nice proposition? - Three Days of The Condor?
Mix in rising short duration rates and flash forward thirty days....
"As of 04/30 IOER at 2.40 is ABOVE all of the 1 through 7 yr bond tenors, and only 4bps below EFFR at 2.44, (at its highest since March 2008)." - Double Parked At The Eccles Building?
In the past, whose been "double parking" and what happens in the process?
Institutions parking funds at the Fed are tapping their "reserves" or "deposits" for quarter end turn premium. Limited only by how much "reserves" they have parked at the Fed (JP Morgan is the king), controlled by collecting IOER (upper bound) and repo rates (lower bound) [theoretically]....
In the process, the participants "deposits" or reserves get drawn down, viz CASH balances at the Fed rise, and systemic CASH liquidity for others gets scarce? Thus, the cost of borrowing in CP, CD or Libor (Euro Dollar) jumps and becomes prohibitive unless one is desperate. It's like shooting fish in a barrel... Reserves, RRP and The Libor Squeeze?
Most ON transactions in fed funds (IBDD) and ED markets are arbitrage trades involving a fairly limited set of cash providers who are ineligible to double park at the Fed and earn IOER.
These market makers instead lend money to financial institutions that have double parking privileges at Eccles and earn the IOER rate at the Fed (Morgan being the biggest double parking offender). - A SOFR Squeeze?
To go along with the Eurodollar, Swap Rates and Swap Spreads, above witness the choked up bundle of an inverted Treasury yield curve. Coming full circle and speaking of inversion and Swap Spreads trending negative of late....
Something very odd is indeed afoot. Whether its balance sheet pressures driving the re-pricing of repo, fire-sales of bonds or lack of interest to purchase them, short covering of positions, etc, etc. - Tod Skarecky, Clarus Financial TechnologySound familiar? Note: above comment is from 2015, or the last time the 10 year swap spread decided to follow the 20 and 30 into the negative pool.
Trebek queries, as long as LIBOR rates are above repo this is a risk free arb? NYFRB window repo at 2.25 to 2.35, BGCR/TriParty at 2.35 and GCF repo at 2.43.
SOFR at 2.38, ON Libor at 2.34; 30 day Libor at 2.43 and 90 day Libor at 2.52. What is becoming a limited "few and the proud" still able or willing to arbitrage this?
Hint: ask the man at the window who seems to be flipping the light switch on and off for the Eccles dancefloor, because perhaps there is more or less? or...
More to come... In The Long Run, How Long? Stay tuned, no flippin
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