After yesterday’s celebration of Memorial Day in the United States global markets are on the move!
Bessent Trying To Remain Optimistic
May 27 (King World News) – Peter Boockvar: He’s said it before but made it clear last week the help he’s anticipating in keeping long-term interest rates low. Secretary Scott Bessent in a long form Bloomberg interview Friday reiterated again the likely easing soon of the Supplementary Leverage Ratio that will allow US banks to hold more Treasuries as it would be given a lower risk weighting. “We are very close to moving” he said. Bessent’s hope that upon a reset, banks would add more Treasuries to their balance sheet and voila, the flood of supply still coming would find a fresh incremental buyer.
…But Dimon Says His Hopes Might Be Too Optimistic
I think though his hopes might be too optimistic. This is what Jamie Dimon said on the last JP Morgan conference call on how a change in the SLR requirement would impact their behavior. “The reason to change some of these things is so banks – the big market makers can intermediate more in the markets. If they do, spreads will come in, there’ll be more active traders. If they don’t, the Fed will have to intermediate, which I think is just a bad policy idea. Every time there’s a kerfuffle in the markets, the Fed has to come in and intermediate. So they make these changes.”
He also said they would not be looking to add to their holdings of Treasuries so an easing of the SLR would just improve market making which would create a deeper, more liquid market. Something positive and needed but not the buyer that Bessent is hoping for. And for those banks that will increase their holdings of Treasuries, the experience of Silicon Valley Bank would most likely mean they would be buying T-bills rather than adding much duration. I thus think the long end of the US yield curve is going to have to find other help.
Dollar Rallying vs Yen
Treasuries are rallying today following a notable bounce in JGB’s after this story from Reuters, “Japan to consider trimming super-long bond issuance, sources say.” The piece said “Japan will consider the trimming of issuance of super-long bonds in the wake of recent sharp rises in yields for the notes, two sources told Reuters on Tuesday, as policymakers seek to soothe market concerns about worsening government finances…The Ministry of Finance (MOF) will consider tweaking the composition of its bond program for the current fiscal year, which could involve cuts to its super-long bond issuance, said the sources who had direct knowledge of the plan. The MOF will make a decision after discussions with market participants around mid to late June, the sources said.”
In response to the story, the 40 yr JGB yield fell 23 bps to 3.32%. Following this, the 10 yr US yield is back below 4.50% and the 30 yr is under 5% again. The yen is also lower vs the US dollar.
No “Drill Baby Drill” As Rig Count Continues To Tumble
US oil companies continued to lay down rigs for the week ended 5/23 in response to depressed oil prices. The Baker Hughes crude oil rig count dropped by 8 rigs to 465 and that is 2nd biggest one week decline since November. That is the least amount of rigs being used since November 2021 and we are watching real time how low prices are in the process of curing low prices. Crude oil is cheap and we remain bullish and long oil and gas stocks.
Meanwhile In Europe
More relevant for markets today was the below estimate French CPI figure for May where it was up .6% y/o/y vs the estimate of up .9% with a drop in energy prices most helping, down by 8.1% y/o/y. Services inflation also moderated to 2.1% growth from 2.4% in April y/o/y. Manufactured goods prices were lower by .2% y/o/y for a 3rd month. Along with the rally in JGB’s and Treasuries, European bonds are slightly higher with the French oat 10 yr yield down by 2 bps after the CPI report. The euro is off slightly from a one month high vs the US dollar but still near the highest level vs the dollar since 2021.
Will Trump Ignite World War III? Is Trump Winning Or Losing With Tariffs?
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JUST RELEASED!
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