At Any Rate
US Rates – There’s no crying in basis
Apr 10, 2025
Jay Barry is the Head of Global Rates Strategy at J.P. Morgan, while Srini Ramaswamy leads their Global Interest Rate Derivatives Strategy. They delve into the recent historic volatility in US rates markets, spurred by tariff impacts and liquidity concerns. The duo discusses the surprising stability in cash/futures basis despite declining overall market liquidity. They unravel complexities in swap spreads and analyze the unexpected drop in core CPI, exploring how these trends could influence future economic risks and Federal Reserve actions.
22:47
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Quick takeaways
- The recent surge in 30-year yields, largely influenced by tariffs, highlights a significant shift in the treasury market's demand dynamics.
- Deteriorating liquidity in the treasury market has exaggerated price movements, yet critical liquidity stress levels have not yet been reached.
Deep dives
Treasury Market Volatility
Recent fluctuations in the treasury market have seen 30-year yields surge by approximately 60 basis points amid rising volatility in risk assets. The sell-off was largely catalyzed by the President's announcement regarding tariffs, even though market-implied Fed and long-run inflation expectations remained stable. This discrepancy suggests fundamental undercurrents at play, particularly concerning the U.S.'s status as a reserve currency and associated institutional credibility. The treasury market is currently experiencing a notable shift in demand dynamics, transitioning from traditional sources such as the Fed and foreign investors towards more price-sensitive demand, which could lead to higher term premiums in the future.
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