Terminal is Nigh - The Week Ahead
- Courriel
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Signet
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Imprimer
Ian Lyngen, Ben Jeffery, and Vail Hartman bring you their thoughts on the U.S. Rates market for the upcoming week of November 6th, 2023, and respond to questions submitted by listeners and clients.
Follow us on Apple Podcasts, Google Podcasts, Stitcher and Spotify or your preferred podcast provider.
About Macro Horizons
BMO Strategists discuss the week ahead in the U.S. rates market delivering relevant and insightful commentary to help investors navigate the ever-changing global market landscape.
Ian Lyngen:
This is Macro Horizon's episode 247, Terminal is Nigh, presented by BMO Capital Markets. I'm your host, Ian Lyngen, here with Ben Jeffery and Vail Hartman, to bring you our thoughts from the trading desk for the upcoming week of November 6th. As the week move from Halloween to All Saints Day to the day of the Dead, it only seems fitting that it ended with disappointment payrolls Friday. If nothing else, it was the makings of a bond rally.
Each week we offer an updated view on the US rates market and a bad joke or two, but more importantly, the show is centered on responding directly to questions submitted by listeners and clients. We also end each show with our musings on the week ahead. Please feel free to reach out on Bloomberg, or email me at ian.lyngen@bmo.com with questions for future episodes. We value your input and hope to keep the show as interactive as possible. That being said, let's get started.
In the week just passed, the treasury market was offered a dizzying array of economic fundamentals from which to derive trading direction. The net takeaway was decidedly lower yields. 10 year yields slipped below 450 in what was generally a bull flattening rally, although on Friday, the disappointing employment report led to a parallel shift lower across the curve. The bid in the two year sector implies that the Fed might be closer to cutting rates than was previously assumed. We'll caution against that interpretation, although one thing is pretty evident, the bar is very high for the Fed to hike rates in December at this point, particularly when we coupled the economic data with the fact that there seems to be no obvious way that Congress will avoid a government shutdown in the middle of November.
In addition to the employment report, which showed an increase in the unemployment rate to 3.9%, we also got the Fed decision to not hike rates as well as the press conference in which Powell made it clear that it's obvious, at least to the FOMC, that there's no clear need to hike rates at this moment.
Now that isn't to say that there couldn't be a shift in financial conditions in favor of an easier bias, which would then presumably prompt the Fed back into action in December, or potentially January. But for the time being, our assumption is that we're at terminal and that the Fed's next challenge will be to avoid cutting rates as long as possible.
Let us not forget that Yellen also weighed in via the refunding announcement with smaller than expected increases further out the curve. This is relevant as it's a clear response to the fact that term premium has increased and therefore Yellen gave investors a better understanding of the Treasury Department's reaction function to the recent pricing. The potential for further increases in auction size next year was also left as an open question. While we could still see February auction size increases, the November refunding statement was somewhat non-committal.
There was also disappointment in the ISM, both manufacturing and services sector, as well as ADP, which actually ended up being a reasonable proxy for private NFP growth in the month of October. All this occurred with the backdrop of the yield curve continuing to invert. This is consistent with the trading dynamic that we anticipate will define the balance of the year, i.e., the Fed remains committed to retaining terminal as long as possible, therefore two year yields are comparatively less volatile than tens and thirties and have an anchor, if not precisely at 5%, then somewhere within that proximity. As a result, the shape of the yield curve has effectively become a directional trade, i.e., we will more often than not see one of two price dynamics playing out, either a bull flattener or a bear steeper. This implies that the parallel shift lower in yields that followed the disappointing payrolls report is the anomaly, not the new normal.
Vail Hartman:
It was a bullish week in the treasury market that brought 450 tens back on the radar and the bid was catalyzed by three primary factors. First was the refunding announcement that confirmed smaller than expected increases to coupon auction sizes in Q4 and revealed that just one additional quarter of boost to coupon issuance will likely be needed. Second was the FOMC that held rates steady for the second consecutive meeting this cycle, and Powell acknowledged that financial conditions have tightened significantly in recent months and that the Fed will be proceeding carefully in light of the uncertainties and balance of risks. Third was the soft NFP print where the unemployment rate ticked up to 3.9% and the disappointing 150K headline payrolls gain versus the 180K consensus, and there was also meaningful downward revisions.
Ian Lyngen:
Vail, you're right, it was a fascinating week in the Treasury market. We had a lot of crosscurrents that really netted to lower rates. I think that part of the reason that it was such an eventful week has to do with the fact that all the market's primary concerns had some input during the week. On the supply side, what we learned was not only, as you pointed out, Vail, were auction size increases further out the curve underwhelming versus market expectations, but embedded in that was a glimpse at Yellen's reaction function to the reintroduction of positive term premium to the market. Said differently, it's been revealed that the treasury secretary is unwilling to term out the federal debt given the current market conditions, or at least not as much as previously assumed.
The reliance on the bill market to cover any shortcomings from a funding perspective seems the typical, and quite frankly, most prudent approach at the moment. With that context having taken away some of the supply angst, the Treasury market was allowed to refocus on the fundamentals. The fundamentals at this stage suggests that despite the resilience of the consumer, as evidenced by the strong personal consumption data in the third quarter GDP print, we are starting to see the weight of prior rate hikes in the labor market. That increase in the unemployment rate, while still below 4%, now has the benchmark gauge of the overall health of the labor market, half a percent off the cycle lows. When putting this into a broader context, investors are growing increasingly confident that we will see a more typical re-basing of the unemployment rate to a higher plateau over the course of the next several months. It follows intuitively that treasuries would rally.
Ben Jeffery:
While in a more traditional cycle, this would probably be enough to inspire a more significant tone change from the world's central banks. Instead, what we saw at Powell's Press conference this week was an acknowledgement of the tightening in financial conditions we've seen over the past few months. While that means the FOMC can be more patient in delivering future rate hikes even after the payrolls report, it certainly doesn't mean that the Fed is going to seriously be talking about rate cuts anytime soon. The fact that we saw market pricing pull forward the first cut of the cycle to June from July before the NFP number, and two year yields drop back to roughly 480, exemplifies that after the impressive selloff we've seen, the market's reaction function has swung back to attempting to pull forward cut pricing and a faster monetary policy response to a softening labor market than the Fed has communicated thus far given where inflation is.
Ian Lyngen:
But to be fair, assuming that we are at terminal at this stage, that means that the last rate hike was in July of 2023. If the Fed ultimately does cut in June of 2024, they will have retained terminal for longer than the seven month average. While technically that would be in keeping with the Fed's messaging, I think that we can all agree that that would be much sooner than the committee would like to see at this point.
Ben Jeffery:
Let's not forget, while we have October's employment data, we also get two more very important inflation reads before the December meeting and another one after that before the January meeting where the trajectory of continued decelerating inflation will probably be necessary for a more widespread messaging around the fact that the Fed doesn't need to hike again, even from those more hawkish on the committee. And especially from the departure point we've reached after the jobs report, this introduces the risk that if inflation doesn't cooperate over the next several months and the tightening of financial conditions we've seen as a function of the increase in rates that then gets undone by a rally in treasuries ultimately puts Powell in the precarious position of facing uncooperative inflation and a market that is no longer tightening for the FOMC, but actually making conditions easier. And to close the loop of circular logic, maybe that means the Fed might be forced to hike.
Ian Lyngen:
Well, I've never been accused of linear thinking, so I think it is important to put that reasoning in the context of what the Fed is attempting to achieve. Despite what we might ultimately believe will be the outcome, the Fed is simply trying to reestablish price stability as a forward assumption in the US economy. That dovetails well with a softer landing scenario. In the event that Treasuries rally, let's say, back to 425 by the end of the year, yes, that would undo some of the tightening and financial conditions. However, the time spent with tighter financial conditions remains relevant. While the peak tightening might not be as high or sustained as long as the Fed might have otherwise wanted at the beginning of the cycle, even at slightly easier, but still restrictive levels, it's a matter of timing for the Fed. The longer that they can avoid cutting rates, the more successful they're going to be in reestablishing price stability.
It's within this framework that I'll offer the observation that Powell has a very high incentive to keep another rate hike on the table as long as he can, regardless of whether or not he actually thinks that the Fed will need to execute. Because as soon as the Fed acknowledges that they're at terminal, the market, as we saw in the wake of non-farm payrolls, will rush to price in an aggressive easing campaign sooner rather than later.
Ben Jeffery:
It's very telling how quickly the realized economic data, monetary policy and what we heard from Powell has overwhelmed the bond vigilante higher supply, higher term premium discussions that obviously dominated the direction of rates over the past several weeks leading up to the Treasury Department's financing estimates that were released this past Monday. While yes, a billion dollar smaller increase across the board in the long end of the curve for this coming quarter supply, it still leaves very large auctions that need to be taken down and an environment where the marginal buyer of treasuries is still something of an uncertainty. Add to that the fact that we've seen a 50 basis point rally in 10 year yields over the course of the last 10 days or so, and the question becomes, has the macro backdrop shifted enough to justify a strong round of sponsorship at this week's refunding auctions on Wednesday and Thursday, or will the weight of supply necessitate some auction discount either in terms of some early bearishness in the week ahead or via softer auction results themselves?
Ian Lyngen:
One thing that does seem pretty obvious is with the rally in Treasuries that brought 10 year yields back to within striking distance of 450 in place, if that price action is maintained into Wednesday's 10 year auction, we will need a bigger concession in one form or another. The flip side of that argument is if we get a modest bear steepening into the take down itself, then we could get a more accurate gauge of investors' interest in Treasuries at this particular inflection point for both the rates and the economic cycle.
Ben Jeffery:
In talking about the price action, it's also worth mentioning the positional backdrop. Now that we've seen the generally long bias in the long end of the curve move back to more balanced positioning, and for those in the market who had been waiting for a reason to buy, maybe this past week's, developments are serving as something of a green light to begin adding duration exposure.
Now what this means going forward is that there's an increased capacity among the real money community to take advantage of buying dips once they present themselves, all while the variety of Treasury market participant who's been short throughout most of the last selloff, aka, CTAs, are now faced with what might be an inflection point toward lower yields, which represents an important tone shift in terms of what the pain trade is. It used to be higher rates, but now maybe it's increasingly becoming lower rates.
Ian Lyngen:
On the topic of green lights, as the light turned from green to yellow to red and then back to green, I can't help but think, is life nothing more than a bunch of honking and screaming? Sometimes it feels that way.
In the week ahead, investors focus in the US rates market will be primarily on the refunding auctions. First up, we will have three years on Tuesday, followed by new tens on Wednesday, and then new thirties on Thursday. There's very little economic data throughout the week, so there will be an emphasis on incoming Fed speak. There are currently a few scheduled Fed speakers and any insight on how comfortable the Committee would be simply conceding that terminal at 550 is good enough will be useful as it implies, obviously, no further rate hikes, but also a transition in the discourse around policy toward ensuring that the market isn't too ambitious in bringing rate cut expectations forward.
We also have Monday afternoon's release of the senior loan officer opinion survey from the Fed. This is a quarterly release and market participants will be watching very closely for any evidence of tightened credit standards, presumably as a result of the regulatory changes in the wake of the regional banking crisis. Recall that the prior release showed some tightening, but nowhere close to dramatic enough that the Fed or market participants would begin to worry about more significant ripple effects throughout the economy.
All of this creates an ideal backdrop for the price action itself to be the biggest driver of the macro narrative in the week ahead. By this we simply mean that if the market is able to easily absorb the refunding, even if it does require a concession of some magnitude, then that suggests a refocus on the fundamentals of growth and inflation as the defining drivers of the outright level of US rates. The foray into positive term premium on the supply concerns that defined the last couple of months of trading was allowed to persist, in part because investors had increasing confidence in the no landing or soft landing narrative. Now that we have some evidence in the form of a softer employment situation report combined with a increase in the unemployment rate, it follows intuitively that investors are once again relying on the fundamentals to guide trading direction.
Let us not forget that on Friday we do have one data report of particular note. That comes in the form of the University of Michigan sentiment survey. While the headline number could prove incrementally tradable, investors will be far more focused on the five to 10 year inflation expectations component, which has been around the 3% level for the last several months. Typically at this point in the cycle, we would assume that that number would be biased lower, especially in the context of the Q3 core PCE print at just 2.5% on a quarterly annualized basis. As the Fed finally settles into terminal, forward inflation expectations with an emphasis on the survey-based measures will be of note to monetary policymakers and help the market gauge how successful or not the Fed has been in reestablishing price stability as a baseline assumption for the US economy.
We've reached the point in this week's episode where we'd like to offer our sincere thanks and condolences to anyone who has managed to make it this far. With Halloween behind us and the holiday party season quickly approaching, we are reminded of the sage wisdom of an ever insightful colleague, "Two Red Bulls equal one night's sleep."
Thanks for listening to Macro Horizons. Please visit us at bmocm.com/macrohorizons. As we aspire to keep our strategy effort as interactive as possible, we'd love to hear what you thought of today's episode, so please email me directly with any feedback at ian.lyngen@bmo.com.
You can listen to this show and subscribe on Apple Podcasts or your favorite podcast provider. This show and resources are supported by our team here at BMO, including the FICC Macro Strategy Group and BMO's Marketing Team. This show has been produced and edited by Puddle Creative.
Speaker 4:
The views expressed here are those of the participants and not those of BMO Capital Markets, its affiliates, or subsidiaries. For full legal disclosure, visit bmocm.com/macrohorizons/legal.
Terminal is Nigh - The Week Ahead
Directeur général et chef, Stratégie de taux des titres en dollars US
Ian Lyngen est directeur général et chef, Stratégie de taux des titres en dollars US au sein de l’équipe Stratégie de titre…
Spécialiste en stratégie, taux américains, titres à revenu fixe
Ben Jeffery est spécialiste en stratégie au sein de l’équipe responsable de la stratégie sur les taux américains de BM…
Analyst, U.S. Rates Strategy
Vail Hartman is an analyst on the U.S. Rates Strategy team at BMO Capital Markets. His primary focus is the U.S. Treasury market with specific interests in Federal …
Ian Lyngen est directeur général et chef, Stratégie de taux des titres en dollars US au sein de l’équipe Stratégie de titre…
VOIR LE PROFIL COMPLETBen Jeffery est spécialiste en stratégie au sein de l’équipe responsable de la stratégie sur les taux américains de BM…
VOIR LE PROFIL COMPLETVail Hartman is an analyst on the U.S. Rates Strategy team at BMO Capital Markets. His primary focus is the U.S. Treasury market with specific interests in Federal …
VOIR LE PROFIL COMPLET- Temps de lecture
- Écouter Arrêter
- Agrandir | Réduire le texte
Ian Lyngen, Ben Jeffery, and Vail Hartman bring you their thoughts on the U.S. Rates market for the upcoming week of November 6th, 2023, and respond to questions submitted by listeners and clients.
Follow us on Apple Podcasts, Google Podcasts, Stitcher and Spotify or your preferred podcast provider.
About Macro Horizons
BMO Strategists discuss the week ahead in the U.S. rates market delivering relevant and insightful commentary to help investors navigate the ever-changing global market landscape.
Ian Lyngen:
This is Macro Horizon's episode 247, Terminal is Nigh, presented by BMO Capital Markets. I'm your host, Ian Lyngen, here with Ben Jeffery and Vail Hartman, to bring you our thoughts from the trading desk for the upcoming week of November 6th. As the week move from Halloween to All Saints Day to the day of the Dead, it only seems fitting that it ended with disappointment payrolls Friday. If nothing else, it was the makings of a bond rally.
Each week we offer an updated view on the US rates market and a bad joke or two, but more importantly, the show is centered on responding directly to questions submitted by listeners and clients. We also end each show with our musings on the week ahead. Please feel free to reach out on Bloomberg, or email me at ian.lyngen@bmo.com with questions for future episodes. We value your input and hope to keep the show as interactive as possible. That being said, let's get started.
In the week just passed, the treasury market was offered a dizzying array of economic fundamentals from which to derive trading direction. The net takeaway was decidedly lower yields. 10 year yields slipped below 450 in what was generally a bull flattening rally, although on Friday, the disappointing employment report led to a parallel shift lower across the curve. The bid in the two year sector implies that the Fed might be closer to cutting rates than was previously assumed. We'll caution against that interpretation, although one thing is pretty evident, the bar is very high for the Fed to hike rates in December at this point, particularly when we coupled the economic data with the fact that there seems to be no obvious way that Congress will avoid a government shutdown in the middle of November.
In addition to the employment report, which showed an increase in the unemployment rate to 3.9%, we also got the Fed decision to not hike rates as well as the press conference in which Powell made it clear that it's obvious, at least to the FOMC, that there's no clear need to hike rates at this moment.
Now that isn't to say that there couldn't be a shift in financial conditions in favor of an easier bias, which would then presumably prompt the Fed back into action in December, or potentially January. But for the time being, our assumption is that we're at terminal and that the Fed's next challenge will be to avoid cutting rates as long as possible.
Let us not forget that Yellen also weighed in via the refunding announcement with smaller than expected increases further out the curve. This is relevant as it's a clear response to the fact that term premium has increased and therefore Yellen gave investors a better understanding of the Treasury Department's reaction function to the recent pricing. The potential for further increases in auction size next year was also left as an open question. While we could still see February auction size increases, the November refunding statement was somewhat non-committal.
There was also disappointment in the ISM, both manufacturing and services sector, as well as ADP, which actually ended up being a reasonable proxy for private NFP growth in the month of October. All this occurred with the backdrop of the yield curve continuing to invert. This is consistent with the trading dynamic that we anticipate will define the balance of the year, i.e., the Fed remains committed to retaining terminal as long as possible, therefore two year yields are comparatively less volatile than tens and thirties and have an anchor, if not precisely at 5%, then somewhere within that proximity. As a result, the shape of the yield curve has effectively become a directional trade, i.e., we will more often than not see one of two price dynamics playing out, either a bull flattener or a bear steeper. This implies that the parallel shift lower in yields that followed the disappointing payrolls report is the anomaly, not the new normal.
Vail Hartman:
It was a bullish week in the treasury market that brought 450 tens back on the radar and the bid was catalyzed by three primary factors. First was the refunding announcement that confirmed smaller than expected increases to coupon auction sizes in Q4 and revealed that just one additional quarter of boost to coupon issuance will likely be needed. Second was the FOMC that held rates steady for the second consecutive meeting this cycle, and Powell acknowledged that financial conditions have tightened significantly in recent months and that the Fed will be proceeding carefully in light of the uncertainties and balance of risks. Third was the soft NFP print where the unemployment rate ticked up to 3.9% and the disappointing 150K headline payrolls gain versus the 180K consensus, and there was also meaningful downward revisions.
Ian Lyngen:
Vail, you're right, it was a fascinating week in the Treasury market. We had a lot of crosscurrents that really netted to lower rates. I think that part of the reason that it was such an eventful week has to do with the fact that all the market's primary concerns had some input during the week. On the supply side, what we learned was not only, as you pointed out, Vail, were auction size increases further out the curve underwhelming versus market expectations, but embedded in that was a glimpse at Yellen's reaction function to the reintroduction of positive term premium to the market. Said differently, it's been revealed that the treasury secretary is unwilling to term out the federal debt given the current market conditions, or at least not as much as previously assumed.
The reliance on the bill market to cover any shortcomings from a funding perspective seems the typical, and quite frankly, most prudent approach at the moment. With that context having taken away some of the supply angst, the Treasury market was allowed to refocus on the fundamentals. The fundamentals at this stage suggests that despite the resilience of the consumer, as evidenced by the strong personal consumption data in the third quarter GDP print, we are starting to see the weight of prior rate hikes in the labor market. That increase in the unemployment rate, while still below 4%, now has the benchmark gauge of the overall health of the labor market, half a percent off the cycle lows. When putting this into a broader context, investors are growing increasingly confident that we will see a more typical re-basing of the unemployment rate to a higher plateau over the course of the next several months. It follows intuitively that treasuries would rally.
Ben Jeffery:
While in a more traditional cycle, this would probably be enough to inspire a more significant tone change from the world's central banks. Instead, what we saw at Powell's Press conference this week was an acknowledgement of the tightening in financial conditions we've seen over the past few months. While that means the FOMC can be more patient in delivering future rate hikes even after the payrolls report, it certainly doesn't mean that the Fed is going to seriously be talking about rate cuts anytime soon. The fact that we saw market pricing pull forward the first cut of the cycle to June from July before the NFP number, and two year yields drop back to roughly 480, exemplifies that after the impressive selloff we've seen, the market's reaction function has swung back to attempting to pull forward cut pricing and a faster monetary policy response to a softening labor market than the Fed has communicated thus far given where inflation is.
Ian Lyngen:
But to be fair, assuming that we are at terminal at this stage, that means that the last rate hike was in July of 2023. If the Fed ultimately does cut in June of 2024, they will have retained terminal for longer than the seven month average. While technically that would be in keeping with the Fed's messaging, I think that we can all agree that that would be much sooner than the committee would like to see at this point.
Ben Jeffery:
Let's not forget, while we have October's employment data, we also get two more very important inflation reads before the December meeting and another one after that before the January meeting where the trajectory of continued decelerating inflation will probably be necessary for a more widespread messaging around the fact that the Fed doesn't need to hike again, even from those more hawkish on the committee. And especially from the departure point we've reached after the jobs report, this introduces the risk that if inflation doesn't cooperate over the next several months and the tightening of financial conditions we've seen as a function of the increase in rates that then gets undone by a rally in treasuries ultimately puts Powell in the precarious position of facing uncooperative inflation and a market that is no longer tightening for the FOMC, but actually making conditions easier. And to close the loop of circular logic, maybe that means the Fed might be forced to hike.
Ian Lyngen:
Well, I've never been accused of linear thinking, so I think it is important to put that reasoning in the context of what the Fed is attempting to achieve. Despite what we might ultimately believe will be the outcome, the Fed is simply trying to reestablish price stability as a forward assumption in the US economy. That dovetails well with a softer landing scenario. In the event that Treasuries rally, let's say, back to 425 by the end of the year, yes, that would undo some of the tightening and financial conditions. However, the time spent with tighter financial conditions remains relevant. While the peak tightening might not be as high or sustained as long as the Fed might have otherwise wanted at the beginning of the cycle, even at slightly easier, but still restrictive levels, it's a matter of timing for the Fed. The longer that they can avoid cutting rates, the more successful they're going to be in reestablishing price stability.
It's within this framework that I'll offer the observation that Powell has a very high incentive to keep another rate hike on the table as long as he can, regardless of whether or not he actually thinks that the Fed will need to execute. Because as soon as the Fed acknowledges that they're at terminal, the market, as we saw in the wake of non-farm payrolls, will rush to price in an aggressive easing campaign sooner rather than later.
Ben Jeffery:
It's very telling how quickly the realized economic data, monetary policy and what we heard from Powell has overwhelmed the bond vigilante higher supply, higher term premium discussions that obviously dominated the direction of rates over the past several weeks leading up to the Treasury Department's financing estimates that were released this past Monday. While yes, a billion dollar smaller increase across the board in the long end of the curve for this coming quarter supply, it still leaves very large auctions that need to be taken down and an environment where the marginal buyer of treasuries is still something of an uncertainty. Add to that the fact that we've seen a 50 basis point rally in 10 year yields over the course of the last 10 days or so, and the question becomes, has the macro backdrop shifted enough to justify a strong round of sponsorship at this week's refunding auctions on Wednesday and Thursday, or will the weight of supply necessitate some auction discount either in terms of some early bearishness in the week ahead or via softer auction results themselves?
Ian Lyngen:
One thing that does seem pretty obvious is with the rally in Treasuries that brought 10 year yields back to within striking distance of 450 in place, if that price action is maintained into Wednesday's 10 year auction, we will need a bigger concession in one form or another. The flip side of that argument is if we get a modest bear steepening into the take down itself, then we could get a more accurate gauge of investors' interest in Treasuries at this particular inflection point for both the rates and the economic cycle.
Ben Jeffery:
In talking about the price action, it's also worth mentioning the positional backdrop. Now that we've seen the generally long bias in the long end of the curve move back to more balanced positioning, and for those in the market who had been waiting for a reason to buy, maybe this past week's, developments are serving as something of a green light to begin adding duration exposure.
Now what this means going forward is that there's an increased capacity among the real money community to take advantage of buying dips once they present themselves, all while the variety of Treasury market participant who's been short throughout most of the last selloff, aka, CTAs, are now faced with what might be an inflection point toward lower yields, which represents an important tone shift in terms of what the pain trade is. It used to be higher rates, but now maybe it's increasingly becoming lower rates.
Ian Lyngen:
On the topic of green lights, as the light turned from green to yellow to red and then back to green, I can't help but think, is life nothing more than a bunch of honking and screaming? Sometimes it feels that way.
In the week ahead, investors focus in the US rates market will be primarily on the refunding auctions. First up, we will have three years on Tuesday, followed by new tens on Wednesday, and then new thirties on Thursday. There's very little economic data throughout the week, so there will be an emphasis on incoming Fed speak. There are currently a few scheduled Fed speakers and any insight on how comfortable the Committee would be simply conceding that terminal at 550 is good enough will be useful as it implies, obviously, no further rate hikes, but also a transition in the discourse around policy toward ensuring that the market isn't too ambitious in bringing rate cut expectations forward.
We also have Monday afternoon's release of the senior loan officer opinion survey from the Fed. This is a quarterly release and market participants will be watching very closely for any evidence of tightened credit standards, presumably as a result of the regulatory changes in the wake of the regional banking crisis. Recall that the prior release showed some tightening, but nowhere close to dramatic enough that the Fed or market participants would begin to worry about more significant ripple effects throughout the economy.
All of this creates an ideal backdrop for the price action itself to be the biggest driver of the macro narrative in the week ahead. By this we simply mean that if the market is able to easily absorb the refunding, even if it does require a concession of some magnitude, then that suggests a refocus on the fundamentals of growth and inflation as the defining drivers of the outright level of US rates. The foray into positive term premium on the supply concerns that defined the last couple of months of trading was allowed to persist, in part because investors had increasing confidence in the no landing or soft landing narrative. Now that we have some evidence in the form of a softer employment situation report combined with a increase in the unemployment rate, it follows intuitively that investors are once again relying on the fundamentals to guide trading direction.
Let us not forget that on Friday we do have one data report of particular note. That comes in the form of the University of Michigan sentiment survey. While the headline number could prove incrementally tradable, investors will be far more focused on the five to 10 year inflation expectations component, which has been around the 3% level for the last several months. Typically at this point in the cycle, we would assume that that number would be biased lower, especially in the context of the Q3 core PCE print at just 2.5% on a quarterly annualized basis. As the Fed finally settles into terminal, forward inflation expectations with an emphasis on the survey-based measures will be of note to monetary policymakers and help the market gauge how successful or not the Fed has been in reestablishing price stability as a baseline assumption for the US economy.
We've reached the point in this week's episode where we'd like to offer our sincere thanks and condolences to anyone who has managed to make it this far. With Halloween behind us and the holiday party season quickly approaching, we are reminded of the sage wisdom of an ever insightful colleague, "Two Red Bulls equal one night's sleep."
Thanks for listening to Macro Horizons. Please visit us at bmocm.com/macrohorizons. As we aspire to keep our strategy effort as interactive as possible, we'd love to hear what you thought of today's episode, so please email me directly with any feedback at ian.lyngen@bmo.com.
You can listen to this show and subscribe on Apple Podcasts or your favorite podcast provider. This show and resources are supported by our team here at BMO, including the FICC Macro Strategy Group and BMO's Marketing Team. This show has been produced and edited by Puddle Creative.
Speaker 4:
The views expressed here are those of the participants and not those of BMO Capital Markets, its affiliates, or subsidiaries. For full legal disclosure, visit bmocm.com/macrohorizons/legal.
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Une première dans l'Ouest canadien : Avenue Living tire parti du programme d'amélioration écoénergétique de BMO pour ajouter 179 nouveaux logements locatifs dans le centre-ville d'Edmonton
Le sommet inaugural de BMO sur l’obésité est axé sur les thérapies et la lutte contre une épidémie croissante
Le coût des plans d’action des entreprises en matière de climat
Risque climatique : changements réglementaires à surveiller en 2024
Comment la NASA et IBM utilisent les données géospatiales et l’intelligence artificielle pour analyser les risques climatiques
L’obligation de publier de l’information sur les facteurs ESG est le signe d’un marché arrivé à maturité
BMO organise un financement vert pour financer le nouveau Lawson Centre for Sustainability, la construction la plus importante de Trinity College depuis un siècle
BMO se classe parmi les sociétés les plus durables d'Amérique du Nord selon les indices de durabilité Dow Jones
Le Canada a l’occasion de devenir un chef de file mondial de l’élimination du dioxyde de carbone
Selon un sondage réalisé par l'Institut pour le climat de BMO auprès des chefs d'entreprise, près de la moitié des chefs d'entreprise des États-Unis et du Canada croient que les changements climatique
Un plus grand nombre d’entreprises ont des plans pour lutter contre les changements climatiques en raison de l’importance croissante qu’ils revêtent sur leurs activités : Résultats du sondage
L’électrification constitue une occasion unique dans le cadre de la transition énergétique
Questions et réponses : comment transformer les défis économiques en possibilités
Le soutien du secteur de l’énergie dans l’atteinte des objectifs de décarbonisation du Canada
Trois idées inspirées de la Semaine du climat pour passer à l’action à la COP28
Pourquoi les entreprises doivent accélérer leurs efforts pour lutter contre les changements climatiques
Du caractère essentiel du financement pour doper les technologies d’élimination du carbone
Transformer le système alimentaire mondial au bénéfice des investisseurs et de la planète
Banco do Brasil and BMO Financial Group to Introduce First-of-its-Kind Program to Provide Sustainability-Linked Trade Loans Supporting Brazilian Exporters
BMO Donates $3 Million to GRID Alternatives to Provide Solar Energy Solutions for Low-Income Families
Comment les investissements dans le captage du carbone peuvent générer des crédits carbone
BMO fournit un nouveau produit innovant, le dépôt lié à la durabilité, à Zurn Elkay Water Solutions
Quick Listen: Michael Torrance on Empowering Your Organization to Operationalize Sustainability
BMO seule grande banque nommée au palmarès des 50 meilleures entreprises citoyennes au Canada
Un investissement rentable : la rénovation comme moyen d’atteindre la carboneutralité
Évolution du marché du carbone : ce qu’en pensent les principaux acteurs
BMO et Bell Canada mettent en œuvre un produit dérivé innovant lié à la durabilité et à des objectifs ambitieux de réduction des émissions de gaz à effet de serre
Réduction du gaspillage alimentaire : solutions, occasions et retombées
J’attends avec impatience notre 18e Conférence annuelle sur les marchés agricoles
BMO fait partie d'un groupe convoqué par l'ONU qui conseille les banques mondiales sur l'établissement d'objectifs liés à la nature
Les chefs de file de l’investissement intensifient leurs efforts en vue d’atteindre l’objectif net zéro
Favoriser les innovations technologiques pour renforcer la résilience face aux changements climatiques
BMO célèbre le Jour de la Terre avec la 3e édition annuelle du programme Des transactions qui font pousser des arbres dans ses salles des marchés mondiaux
BMO Donates $2 Million to the University of Saskatchewan to Accelerate Research Critical to the Future of Food
L’infrastructure est la clé d’un marché compétitif en Amérique du Nord – Sommet États-Unis–Canada
Le temps presse pour les solutions au changement climatique - Sommet Canada-États-Unis
North America’s Critical Minerals Advantage: Deep Dive on Community Engagement
Réchauffement climatique : le GIEC lance son dernier avertissement de la décennie
Les légendes du roc réfléchissent aux réussites et aux échecs de l’industrie minière lors de la Conférence mondiale sur les mines, métaux et minéraux critiques
Exploration des avantages de l’extraction de minéraux critiques en Amérique du Nord dans le cadre de la Conférence mondiale sur les mines, métaux et minéraux critiques
La confiance est la denrée la plus précieuse : Message de l’ICMM à la Conférence mondiale sur les mines, métaux et minéraux critiques de BMO
Explorer les risques et les possibilités associés aux notations ESG dans le secteur minier
BMO Experts at our 32nd Global Metals, Mining & Critical Minerals Conference
Evolving Mining for a Sustainable Energy Transition: ICMM CEO Rohitesh Dhawan in Conversation
BMO Equity Research on BMO Radicle and the World of Carbon Credits
BMO tiendra sa 32e conférence mondiale sur le secteur des mines, des métaux et des minéraux essentiels
Public Policy and the Energy Transition: Howard Learner in Conversation
Taskforce on Nature-Related Financial Disclosure (TNFD) – A Plan for Integrating Nature into Business
Points à retenir du sondage sur le climat des petites et moyennes entreprises réalisé par l’Institut pour le climat de BMO
BMO nommée banque la plus durable d'Amérique du Nord par Corporate Knights pour la quatrième année d'affilée
Le financement vert du nucléaire : nouvelle frontière de la transition énergétique?
Assurer l’avenir des approvisionnements alimentaires : le rôle de l’Amérique du Nord
BMO s'est classé parmi les entreprises les plus durables en Amérique du Nord selon les indices de durabilité Dow Jones
Un sondage de l'Institut pour le climat de BMO révèle que les coûts et les priorités concurrentes ralentissent l'action climatique des petites et moyennes entreprises
Gérer et monétiser votre transition vers un monde carboneutre avec BMO et Radicle
BMO est l'institution financière la mieux classée selon le Global Sustainability Benchmark, le nouvel indice de référence mondial du développement durable annoncé lors de la COP 27
COP27 : Les problèmes de sécurité énergétique et l’incertitude économique ralentiront-t-ils la transition climatique?
BMO investira dans les crédits compensatoires de carbone novateurs de CarbonCure pour stocker du CO₂ de façon permanente
Financement commercial : vers le développement durable, une entreprise à la fois
RoadMap Project: An Indigenous-led Paradigm Shift for Economic Reconciliation
Une première canadienne : BMO et l'Université Concordia s'unissent pour un avenir durable grâce à un prêt innovant lié à la durabilité
Intégration des facteurs ESG dans les petites et moyennes entreprises : Conférence de Montréal
BMO entend racheter Radicle Group Inc., un chef de file des services environnementaux situé à Calgary
Investment Opportunities for a Net-Zero Economy: A Conversation at the Milken Institute Global Conference
S’ajuster face aux changements climatiques : l’Institut pour le climat de BMO
How Hope, Grit, and a Hospital Network Saved Maverix Private Capital Founder John Ruffolo
Hydrogen’s Role in the Energy Transition: Matt Fairley in Conversation
Key Takeaways on Ag, Food, Fertilizer & ESG from BMO’s Farm to Market Conference
Les risques physiques et liés à la transition auxquels font face l’alimentation et l’agriculture
Agriculture de pointe : réduire les impacts environnementaux en même temps que les coûts
Building an ESG Business Case in the Food Sector: The Food Institute
J’attends avec impatience notre 17e Conférence annuelle sur les marchés agricoles
Les prix des métaux encore loin d’une nouvelle normalité : Table ronde de BMO sur les mines
Aller de l’avant en matière de transition énergétique : Darryl White s’adresse aux gestionnaires de réserves et d’actifs mondiaux
BMO et EDC annoncent une collaboration pour présenter des solutions de financement durable aux entreprises canadiennes
Refonte au Canada pour un monde carboneutre : Conversation avec Corey Diamond d’Efficacité énergétique Canada
The Role of Hydrogen in the Energy Transition: FuelCell Energy CEO Jason Few in Conversation
BMO est fier de soutenir la première transaction d'obligations vertes du gouvernement du Canada en tant que cochef de file
Article d’opinion: Le Canada peut être un leader en matière de sécurité énergétique
Les mesures prises par le gouvernement peuvent contribuer à stimuler la construction domiciliaire afin de remédier à la pénurie de logements au Canada
Tackling Climate Change in Metals and Mining: ICMM CEO Rohitesh Dhawan in Conversation
La circulaire de sollicitation de procurations et les rapports sur la durabilité 2021 de BMO sont maintenant disponibles
Why Changing Behaviour is Key to a Low Carbon Future – Dan Barclay
BMO lance le programme Services aux entreprises à portée de main - BMO pour les entrepreneurs noirs et annonce un engagement de 100 millions de dollars en prêts pour aider les entrepreneurs noirs à dé
The Post 2020 Biodiversity Framework – A Discussion with Basile Van Havre
BMO annonce son intention de se joindre au programme Catalyst de Breakthrough Energy pour accélérer l'innovation climatique
BMO Groupe financier nommé banque la plus durable en Amérique du Nord pour la troisième année d'affilée
Using Geospatial Big Data for Climate, Finance and Sustainability
Atténuer les répercussions des changements climatiques sur les actifs physiques par la finance spatiale
BMO aide Boralex à aller Au-delà des énergies renouvelables en transformant sa facilité de crédit en un prêt lié au développement durable
Première mondiale : BMO soutient Bruce Power avec le premier cadre de financement vert du secteur nucléaire au monde
BMO se classe parmi les entreprises les plus durables au monde, selon les indices de durabilité Dow Jones
COP26 : Pourquoi les entreprises doivent assumer leur responsabilité sociale
The Future of Remote Work and Diversity in the Asset Management Industry
Changer les comportements est essentiel pour assurer un avenir à faible émission de carbone – Table ronde Milken
BMO aide Teck Resources à progresser vers ses objectifs ESG avec un prêt lié à la durabilité
Première dans le secteur des métaux et des mines en Amérique du Nord : BMO aide Sandstorm Gold Royalties à atteindre ses objectifs ESG grâce à un prêt lié à la durabilité
Éducation, emploi et autonomie économique : BMO publie Wîcihitowin ᐑᒋᐦᐃᑐᐏᐣ, son premier Rapport sur les partenariats et les progrès en matière autochtone annuel
BMO annonce un engagement de financement de 12 milliards de dollars pour le logement abordable au Canada
In support of Canada’s bid to host the headquarters of the International Sustainability Standards Board
Investing in Real Estate Sustainability with Bright Power Inc.
BMO appuie la candidature du Canada pour accueillir le siège du Conseil des normes internationales d'information sur la durabilité
BMO nommé au classement des 50 meilleures entreprises citoyennes au Canada de Corporate Knights
ESG From Farm to Fork: Doing Well by Doing Good
Banques centrales, changements climatiques et leadership : Forum annuel destiné aux femmes œuvrant dans le secteur des titres à revenu fixe, devises et produits de base
BMO met sur pied une nouvelle équipe innovatrice pour la transition énergétique
L’appétit croissant pour l’investissement dans un but précis dans les valeurs à revenu fixe par Magali Gable
BMO organise le congrès annuel mondial sur les marchés agricoles pour une 16e année consécutive
Première nord-américaine : BMO aide Gibson Energy à transformer entièrement une facilité de crédit en un prêt lié à la durabilité
Le programme Des transactions qui font pousser des arbres permettra d’en planter 100 000
Les arbres issus des métiers bénéficient d'un marché obligataire ESG solide
Understanding Biodiversity Management: Best Practices and Innovation
The Changing Face of Sustainability: tentree for a Greener Planet
La 30e conférence mondiale annuelle sur le secteur des mines et des métaux de BMO est en cours
Favoriser des résultats durables : le premier prêt vert offert au Canada
Episode 29: What 20 Years of ESG Engagement Can Teach Us About the Future
Rapport sur les perspectives de 2021 de BMO Gestion mondiale d'actifs : des jours meilleurs à venir
Episode 28: Bloomberg: Enhancing ESG Disclosure through Data-Driven Solutions
Comment Repérer L’écoblanchiment Et Trouver Un Partenaire Qui Vous Convient
BMO se classe parmi les entreprises les plus durables selon l'indice de durabilité Dow Jones - Amérique du Nord
Episode 27: Preventing The Antimicrobial Resistance Health Crisis
BMO investit dans un avenir durable grâce à un don d’un million de dollars à l’Institute for Sustainable Finance
BMO Groupe financier franchit une étape clé en faisant correspondre 100 pour cent de sa consommation d'électricité avec des énergies renouvelables
BMO Groupe financier reconnu comme l'une des sociétés les mieux gérées de manière durable au monde dans le nouveau classement du Wall Street Journal
Episode 23: TC Transcontinental – A Market Leader in Sustainable Packaging
Les possibilités de placement durables dans le monde d’après la pandémie
BMO Capital Markets to host 2020 Prescriptions for Success Healthcare Virtual Conference
Les sociétés axées sur l’efficacité énergétique peuvent maintenant réduire leurs coûts d’emprunt
BMO Groupe financier s'approvisionnera à 100 pour cent en électricité à partir d'énergies renouvelables
Episode 13: Faire face à la COVID-19 en optant pour des solutions financières durables
Épisode 09 : Le pouvoir de la collaboration en matière d'investissement ESG
Épisode 08 : La tarification des risques climatiques, avec Bob Litterman
Épisode 07 : Mobiliser les marchés des capitaux en faveur d’une finance durable
Épisode 06 : L’investissement responsable – Tendances et pratiques exemplaires canadiennes
Épisode 04 : Divulgation de renseignements relatifs à la durabilité : Utiliser le modèle de SASB
Épisode 03 : Taxonomie verte: le plan d'action pour un financement durable de l'UE
Épisode 02 : Analyser les risques climatiques pour les marchés financiers