Odd Lots
Mark Cabana on the Fed, QT and Treasury Funding
Jan 31, 2024
Mark Cabana, a longtime rates strategist at Bank of America, shares his insights on the bond market amidst a crucial week for the Federal Reserve. He discusses the looming challenge of who will purchase U.S. bonds as the Treasury ramps up issuance. The conversation shifts to the effects of rate cuts on bank balance sheets, alongside the complexities of liquidity management post-banking crisis. Cabana emphasizes the intricate dynamics of the Fed's balance sheet strategies and how they impact market behaviors.
42:13
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Quick takeaways
- The Fed's decision on interest rates and potential declaration of victory will signal the beginning of a cutting cycle.
- Commercial banks have increased liquidity preferences, leading to higher demand for reserves and impacting the Fed's balance sheet.
Deep dives
Fed Meeting, QT, and Treasury Refunding
The podcast episode discusses the upcoming Fed meeting and the various factors that will impact the markets. It highlights the importance of the Fed's decision on interest rates and its potential declaration of victory, signaling the beginning of a cutting cycle. The episode also explores the concept of quantitative tightening (QT) and the potential effects on the market. Additionally, it delves into the quarterly refunding from the Treasury and the influence it has on term premiums. The episode emphasizes the role of macroeconomic data in determining the direction of bond yields.
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