Jaws! All Quiet On The Debt Front Prior To FOMC Meeting (Vol Cube Showing Stress At Both Ends Of The Curve)

Yes, and the woman going for a night swim in the film “Jaws” felt perfectly safe too. Until the music started.

SIFMA has an excellent chart documenting the explosion of debt issuance since 1998 that   amped-up with The Fed’s intervention in 2008.

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Despite the massive growth of long-term debt (with correspond high duration risk), the interest rate volatility cube is showing calm seas … except at the short-end of matures .. and now the long-end is starting to show more volatility.

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Is it my imagination, or do those volatility spikes look like shark fins??

The Fed Funds Futures market is showing 1-2 Fed Funds rate cuts for the next two meetings.

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And the expected future outcomes are pointing in the downward direction.

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Even Austria is showing a steep decline in their 100-year bond yields.

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While it is seemingly all quiet on the bonds front, volatility is emerging at both ends of the maturity curve. HEDGE!!!!

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Despite “Strong” US Jobs Report, Fed Rate Cut Still Likely (Interest Rate Volatility Cube Still Spiked At Short End)

Despite Friday’s “strong” job report of 224,000 jobs added to the US economy and speculation that The Federal Reserve may actually NOT cuts rates at the next FOMC meeting, The Fed Funds futures market is still signaling an upcoming rate cut.

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And the expected path of Fed rate cuts (orange dashed line) is still downward sloping,

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The US dollar swaps curve, the OIS curve and the swaps SPREAD curve are all sagging at the short-end.

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The interest rate volatility cube is still spiked at the short end (according to swaptions).

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Let’s see if things change by Monday afternoon (my class meets at 4:30 PM EST).

Fed Chair Powell may have more free time to socialize if Trump has his way!!

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