Deposit Funding Compass Week of October 18, 2023

Treasuries tumbled, driving two-year yields to a 17-year high, after a surprisingly large jump in retail sales last month increased speculation that the Federal Reserve will raise interest rates again. Yields rose across the maturity spectrum led by the five-year, which rose as much as 17 basis points to the highest level since 2007. The two-year note’s rise to 5.207%, last seen in 2006, exceeding its Sept. 21 high. The 10-year Treasury yield rose as much as 15 basis points and approached 4.86%, just shy of the year-to-date peak reached on Oct. 6, which was the highest level since 2007. Swap contracts tied to Fed rate decisions showed traders are pricing in more than 60% odds that policymakers will raise interest rates by another quarter percentage point in January after holding steady in November. A move in December is considered possible but less likely than January.

Liquidity in the CD market has been easy to find inside of the 3yr maturity mark but beyond that point participants face increasingly attractive alternatives in the aforementioned US treasury curve as investors in CDs demand a premium to risk free US debt. Embedded call options still remain an attractive option to extend duration at little relative premium to short term pricing though that spread too has begun to widen. We anticipate a busy November as banks look to get in front of what is typically a crowded market at year end and an increasingly likely additional rate hike in the beginning of 24’.

Additional Resources

Deposit Funding Compass Week of March 26, 2024

Open transactions for what was ultimately a rather muted quarter end have begun to close and issuance for early April has assumed a moderate pace.  Treasuries steadily march to the upside with sentiment regarding a June rate cut beginning to shift from what was once a foregone conclusion to increasingly unlikely. What this means for…
Read More...

CU Funding Compass Week of March 26, 2024

Open transactions for what was ultimately a rather muted quarter end have begun to close and issuance for early April has assumed a moderate pace.  Treasuries steadily march to the upside with sentiment regarding a June rate cut beginning to shift from what was once a foregone conclusion to increasingly unlikely. What this means for…
Read More...

CU Funding Compass Week of March 21, 2024

Traders were prepared for the FOMC to push back against their optimism over interest-rate cuts,  and when they didn’t, buy signals flashed across Wall Street.  Global stocks and bonds extended gains on Thursday after Fed policymakers kept rates on hold and continued to pencil in three quarter-point cuts this year. While Powell emphasized the US central bank was…
Read More...

Deposit Funding Compass Week of March 21, 2024

Traders were prepared for the FOMC to push back against their optimism over interest-rate cuts,  and when they didn’t, buy signals flashed across Wall Street.  Global stocks and bonds extended gains on Thursday after Fed policymakers kept rates on hold and continued to pencil in three quarter-point cuts this year. While Powell emphasized the US central bank was…
Read More...

Deposit Funding Compass Week of March 14, 2024

Prices paid to US producers rose in February by the most in six months, driven by higher fuel and food costs that add to evidence inflation remains elevated.  The report showed a rise of 1.6% from a year earlier, the largest annual advance since September.  The February reading of the PCE, the Fed’s preferred inflation…
Read More...

Deposit Funding Compass Week of March 6, 2024

Fed Chair Jerome Powell reiterated to lawmakers that the US central bank is in no rush to cut interest rates until policymakers are convinced they have won their battle over inflation. In prepared testimony to a House panel Wednesday, the Fed chief said it will likely be appropriate to begin lower borrowing costs “at some…
Read More...

CU Funding Compass Week of March 6, 2024

Fed Chair Jerome Powell reiterated to lawmakers that the US central bank is in no rush to cut interest rates until policymakers are convinced they have won their battle over inflation. In prepared testimony to a House panel Wednesday, the Fed chief said it will likely be appropriate to begin lower borrowing costs “at some…
Read More...

Deposit Funding Compass Week of February 29, 2024

The US economy expanded at a slightly slower rate at the end of last year as a downward revision to inventories masked stronger household spending and investment. GDP rose at a revised 3.2% annualized pace in the fourth quarter, compared with a prior estimate of 3.3%. Consumer spending advanced at a 3% rate. Inflation was revised higher. The Federal Reserve’s…
Read More...

CU Funding Compass Week of February 29, 2024

The US economy expanded at a slightly slower rate at the end of last year as a downward revision to inventories masked stronger household spending and investment. GDP rose at a revised 3.2% annualized pace in the fourth quarter, compared with a prior estimate of 3.3%. Consumer spending advanced at a 3% rate. Inflation was revised higher. The Federal Reserve’s…
Read More...

Deposit Funding Compass Week of February 22, 2024

The Treasury options market is sending bearish signals and bond traders are bracing for the risk of a renewed selloff, driving a surge of trading targeting higher yields and prompting investors to unwind long positions by the most in nearly two years. The trend gained momentum this week, when there was strong demand for contracts…
Read More...