CU Funding Compass Week of August 23, 2023

US home purchase applications fell to the lowest level since 1995 and weak European data bolstered bets that major central banks will pause their interest-rate hikes to prevent a recession.  Traders also awaited a US preliminary revision of payrolls growth that’s seen adding fuel to the rate debate. Treasury two-year yields, which are more sensitive to imminent Federal Reserve moves, fell below 5%.  The advance in bonds this morning has partially been attributed to short covering after a selloff that recently drove US 10-year yields to the highest since late 2007 on speculation that rates would remain higher for longer to curb inflation — even if the Fed decides to pause its hiking campaign.

Share Certificate funding levels struggled to gain ground against the precipitous selling in treasuries and spreads for banks looking for deposits remain favorable with Share Certificate coupons drifting negative to treasury yields through many portions of the curve, particularly the front end and also maturities 5yrs+.