Odd Lots Mark Cabana on the Fed, QT and Treasury Funding
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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.
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Busy Week for Bonds
- This week is busy for the bond market, with the Fed meeting and Treasury's refunding statement.
- The focus is on the Fed's balance sheet reduction, bank balance sheets, and market liquidity.
Fed's Importance
- The expected overnight rate path is the most important factor for rates, making the Fed's decision key.
- While Treasury's quarterly refunding is secondary, it impacts market perception due to past surprises.
Bond Buyers Narrative
- A popular 2023 narrative questioned who would buy bonds amid rising inflation and deficits.
- Despite this, 10-year bond yields returned to around 4% by the end of 2023.