June 29. (Un)easy money

–Yields pushed a bit higher with tens up 2 bps to 221.9; curve tilted steeper with 2/10 up 3.7 bps to 87.   The dollar index closed at a new recent low.  Hawkish central bank comments prompted Reuters to ask in a headline. ‘End of Easy Money?’ http://www.reuters.com/article/us-global-markets-idUSKBN19K031

–At the end of a light volume day, the Fed announced that banks hurdled the stress tests.  CNBC commentators were almost giddy about banks returning money to shareholders through increased dividends and buybacks.  For example, Citi increased its dividend by 100% coupled with a buyback of $15.6b.  My question is this: if the Fed is now primarily concerned about financial stability conditions and continues to hike Fed Funds, won’t it become much harder for banks to make money with a flat (or even inverted) curve?  One of the guests repeatedly referred to the Fed’s FOR data (Household Financial Obligations Ratio, which is the % of disposable income that HH’s use to service debt).  He noted that it has been near the lows for several years, apparently to suggest that HH balance sheets are in great shape and a wave of consumer spending is going to wash over the economy.  Dude, you’re missing something.  It’s not HH balance sheets that we’re concerned about this time, it’s corporate.  Also, given that the FOR is on the low side, why hasn’t consumer spending already taken off?  Since 1990, the high in FOR is 18.13% in Q4 2007. Since 2013 it has been between 15.56 and 15.24 and is now 15.47 (2017, Q1).  Is it that big of a deal?

–News today includes Q1 GDP 1.2 expected and last.  Jobless Claims 240k.

–Ten year note is near an important level 224 to 225.  A couple of closes above this level should portend a leg to higher yields in general.  Beware the unwind of both stock and bond rallies simultaneously.

Posted on June 29, 2017 at 5:22 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply