Derivatives Market Color You Can Count On

Swap rates and Treasury yields continue to climb. Swap rates and Treasury yields climbed across the curve yesterday, the 10-year Treasury yield climbing all the way to 1.86%. Amid the sell-off in Treasurys, the yield curve has also steepened significantly- the spread between 2-year and 10-year yields widening out to nearly 23 basis points. At least a few members of the Fed have taken it as a sign of a job well done- Dallas Fed President Robert Kaplan remarking that the steepening “reinforces that we’ve probably got an appropriate setting of the Fed funds rate now...

Commerce Secretary Wilbur Ross says that the US and EU are close to agreement on automobile imports. The agreement would potentially eliminate automobile tariffs, a welcome sign of progress on the trade front with US allies. The US and China also appear to be close to agreeing to a location for the signing of a “phase one” trade agreement that was originally supposed to be signed in Chile before that summit was cancelled due to civil unrest in the South American country. The positive sentiment around trade has rates higher by 6+ basis points across the curve to...

FOMC cuts rates as expected, now looks to pause. The Fed made good on market expectations yesterday by cutting policy rates by 25 basis points. The Fed’s statement removed its pledge to “act as appropriate to sustain the expansion,” suggesting that rates are on hold for the foreseeable future. Fed Chair Jerome Powell echoed that sentiment in his press conference- saying that the Fed would need to see a “material deterioration” to their economic outlook before cutting rates again. Fed funds futures are currently pricing one cut throughout all of 2020. Future rate...

European Central Bank leaves policy rates unchanged, confirms restart of bond purchases. The ECB left their deposit rate unchanged at -0.50%, a move largely expected after last month’s big rate cut. The ECB also confirmed that they will purchase $20B worth of bonds each month as they attempt to kickstart inflation and growth. While ECB President Mario Draghi’s term is coming to an end, it’s unlikely Christine Lagarde (his successor and former head of IMF) will bring about any major changes as she is considered at least as dovish as Draghi. Lagarde inherits the...