Bond Market Agrees with the Fed

Two months ago – the bond market was at odds with the Fed. Fixed income markets felt the Fed were going to be forced to cut rates as many as three times this year. For e.g., the gap between the US 2-yr yield and the Fed funds rate was in excess of 100 basis points. At the time I questioned who would be right? Bonds or the Fed? Fast forward to today and the gap has closed considerably… bonds have now realigned with the Fed’s way of thinking; i.e. expect higher for longer

Could $1.1 Trillion in ‘T-Bills’ Suck Out Liquidity?

Over the weekend, financial media reported a deal in principle to raise the debt ceiling. Based on all reports, the deal sets a two-year spending cap, kicking in October 1. Now if Washington DC agrees to at least slow its spending – they’re likely to be doing it during an economic slowdown. And this could have a near-term impact on economic growth and the valuations of risk assets. What’s more, if Treasury are permitted to issue $1.1 Trillion in fresh T-bills – what will that do to liquidity? Will banks deposits start looking for a (higher return) home?

Surface Cracks Appear in Credit

If there’s one thing that keeps the US going… it’s the availability of cheap credit. Love it or hate it – the US is a credit driven economy. If credit dries up – it’s goodnight nurse. The US consumer now owes close to $1Trillion on their credit card – a 17% jump from a year ago and a record high. More than 33% U.S. adults have more credit card debt than emergency savings

For a full list of posts from 2017…