Dovish CPI Surprise?..30 year Auction... Why Did 10's BackUp...Ides of March
Bloomberg economics is out today saying that inflation will peak in February, pretty aggressive view since we are there now. Nonetheless CPI comes out today and many think it will show moderation and to expect a dovish move off the number... Given the CPI expectation is 7.3%, we do not see the "peak" yet... But a number under 7% or a number above 7.5% should have the expected affects on rates... Either a rally into the 30 year today, or continued weakness towards 2% 10 years...
The IDES of March... We picked up on something that a Pictet portfolio manager said on Jon Fero's 9 am Bloomberg TV show... He said that March has been the high yield of rates (10 years) in the last few years...we know that last March 2021 the 10 year high yield of the year was 1.77... But as we looked back, the high yield of 2017 was in March of 2.625.. The high yield of 2018 was close to March, but more in May of 3.12, the high of 2019 was March at 2.76, the high of 2020 was March after the pandemic of 1.26... Clearly he has spotted a trend... So while we expect the long bond auction to go well today, we still have another 5 weeks until the Fed meeting, where the 10 year again, could hit the high yields of the year...Blackrock Vice Chairman Hildebrand said yesterday that the Central Banks will have to live with higher inflation because the cost to the economy will be too great if they raise rates aggressively.
Auction today... Should go well, as both the 3 year and the 10 year this week showed large direct buyers and small street tails... We still are not sure why the 10 year backed up 4 basis after the auction last night... Some say preparation for the long bond, but that was only a minor part of it... Meanwhile the BOJ came in last night and said the .25 basis 10 years is the line in the sand.. They will not permit higher rates , they are currently at .23... This caused some buying from Japanese accounts given they are on holiday Friday... So we are at 1.92 10 years, with long bond buyers today expected to be buying to lock in pension and insurance money... Sorry if we do not get excited with 30 year risk at 2.25 with inflation over 7%...
Short rates... Banks are refusing to raise deposit rates as treasuries and bills go higher... With 2 years at 1.34, and a high yesterday of 1.36, we see 2 year support at 1.48, with a range of 1.31 to 1.69... This could be too high as we are hearing from our Bank friends that corporate treasurers are starting to look at moving their bank deposits to the short treasury market... So expect the short levels to remain sticky from here... Again, this fits into our view that the Fed Hawkishness that the market has built in of 5.4 rate hikes for 2022, is too high... But that is an argument for another day..
Corporate new issuance came with a decent chunk yesterday with only 3 basis concessions on average..8 borrowers priced 11.25 billion in the high grade market..junk remains slow with only 45 issuers so far this year with over 30 billion of supply compared to 97 companies and 68 billion last year...CDX HY and IG are marginally wider this morning... We do not think the wides are in yet for this year, but it is quiet and steady for now...
