At Any Rate US Rates - Signal and noise
Mar 31, 2025
The latest trends in U.S. financial markets unfold as experts navigate the complexities of data and Federal Reserve policies. They dive into how inflation forecasts and tariff uncertainties reshape market dynamics, especially in swap markets. The wide-ranging effects of upcoming regulatory changes on swap spreads and treasury demand are scrutinized. Additionally, factors influencing front-end swap spreads come into play, shedding light on upcoming financial milestones and the resilience of the banking system.
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Key Factors for Fed Policy
- The biggest factors influencing the Fed's policy are economic growth and the job market.
- Also important are inflation and inflation expectations.
Fed on Hold
- The Fed is expected to remain on hold for the next few months due to front-loaded inflation risks and lagged growth/labor market impacts.
- This favors carry and relative value convergence trades within the yield curve.
Inflation Expectations and Yield Curve
- Inflation expectations are becoming increasingly important in driving the yield curve slope.
- Investors should pay close attention to market-based long-term inflation measures like the 5y5y inflation swap rate.