Daily Flows & Commentary BY THE CURVE TEAM –

Daily Flow & Insights – Fed Balance Sheet Reduction

Thursday, 7th April, 2022

Daily Flows

  • Rates experienced yet another substantial lift yesterday off the back of more hawkish tones from central banks.
  • NAB increased their TD rates across the curve to levels competitive against all credit ratings, currently offering the highest 2-year rate in the market. Macquarie Bank also announced a very attractive lift in their TD rates, with outstanding rates out to 12 months effective today.
  • NCD levels also increased off the rise in swaps. Outright rates are looking increasingly attractive, with 3mBBSW setting at 0.28% yesterday. Intesa Sanpaolo have today increased their 1-year rate to a standout 2.05%, still higher than any other TD or NCD level available.
  • Bonds sold off dramatically, seeing yields increase on their upward trajectory. The January 2027 Suncorp fixed line momentarily broke through 4.00%, with levels on the whole increasing by as much as 30bps in the longer end of the curve.

FOMC Minutes

  • The hawkish minutes display a clear objective to tackle inflation, and fast.
  • Balance sheet reduction and rate hikes will be the tools used.
  • The prediction is for U.S $95b a month to be rolled off the balance sheet, commencing from the May meeting.
  • Further to this, Fed President Barkin is calling for 9-10 rate hikes to bring rates back to neutral.
  • The markets are now pricing in 3 hikes by June in the U.S.
  • In response, 2Yr and 10Yr treasuries pushed out slightly, in response to minutes.

Domestic Data Today

  • Trade Balance Data is out today, with the expectation being that the balance will fall considerably.

Nicholas Allan

Associate - Money Markets