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U.S. Rates - Counting down to November
Oct 25, 2024
Join Srini Ramaswamy, Global Head of Rates Derivatives Strategy at J.P. Morgan, and Ipek Ozil, Senior Derivative Strategist, as they delve into the impact of the upcoming U.S. elections on rates markets. They discuss how different electoral outcomes could influence treasury supply and options pricing. The duo also examines the Fed's quantitative tightening, warning of potential risks to financial liquidity. Insights on managing market volatility amidst these changes offer strategies for cautious investment in uncertain times.
12:09
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Quick takeaways
- The upcoming U.S. election is expected to significantly impact rates markets and fiscal policy, influencing liquidity and term premiums.
- The Federal Reserve's ongoing quantitative tightening may exacerbate funding stress, raising concerns over liquidity disruptions in the financial system.
Deep dives
Impact of the Election on U.S. Rates Markets
The upcoming U.S. election is anticipated to significantly influence the rates markets, particularly through its implications on fiscal policy. A divided government could maintain the status quo, while a sweeping victory by either party may increase deficits and treasury supply, thus impacting term premium. The pricing within the options markets indicates a greater election premium for longer-term rates compared to shorter durations, suggesting that the election's consequences will be more pronounced over time. Overall, the expectation is that the effects of the election will shape the funding premium in the near term, leading to a narrowing of longer maturity swap spreads and a flattening of the swap spread curve.
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Discover
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Listen to the best highlights from the podcasts you love and dive into the full episode