FIVE PCT
October 19, 2023
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–Tens appear to want to test 5% today as 20’s hit 5.25% yesterday before the auction. According to St Louis Fed the high ten-year yield in 2006 was 5.20% which followed the Fed’s 2004-2006 hiking campaign. Tens now 4.955% vs ending at 4.90% at yesterday’s futures settlement.
–Does this have something to do with it? From the Kobeissi Letter, “Total US debt has grown by ~$22 billion PER DAY for the last month… Since the debt ceiling “crisis” ended, total US debt is up over $2 trillion.” Sort of makes the $5 billion or so a month of supposed student loan debt pay-off look inconsequential.
–Powell speaks at noon today at the Economics Club of NY.
–While the Nov 1 FOMC has been taken off the table in terms of a hike, the December 13 meeting is showing increased odds. For example, yesterday FFX3/FFF4 spread settled 9 and had been 9.5 bid late in the day. (9465.5/9456.5). The Jan contract alone is 5.435%, 10.5 bps above the current EFFR…almost halfway there. However, in SOFR, Dec3/March4 spread is -6 (9452.0/9458.0). So, leaning for an end of year hike followed by bias for ease. Rarely does the market have perfect timing. Actually, on the FF curve both FFF4 and FFJ4 settled 9456.5, so at this point, the market leans toward ease AFTER Q1.
–Attached chart was from yesterday, 20yr yield at 5.25% exactly at lower band of FF target range, and just above the 2yr. A positively sloped treasury curve helps the banks…but not if long rates are so high that bankruptcies jump and lending is curtailed.
