Now that markets are settling and are of the opinion that the Fed will tighten 15 March, markets have moved pretty much in the same directions. Equities have weakened slightly and so too bonds. The odds of a Fed rate hike next week is about 98% and then the odds are favouring another hike in June.
What we have missed however is what is happening in the front end of the curve. Bills are actually rallying when they should be weaker. Why is this so? Simply put the Debt ceiling expires March 15and the Fed has to retire $400 bio of bills. To date it has matured about $300 bio all up and this means that demand is far outweighing supply and distorting the market. Futures are trading on a spread basis of about 2 times wider than normal.
There was a 3 year Treasury auction today and the results were somewhat disappointing. No doubt the weak result is on the expectation that rates will be higher come next week so better to buy three years then than now. The 10 year Treasury note traded about 2.51% and the Dow was weaker by about 0.14%. The 10 year Bund closed about 0.32%.
The Dollar Index was steady and the euro was slightly weaker down 0.1%. Oil was stronger up 0.1% and copper fell on the basis that China is slowing stockpiles.
Aussie Market Today.
The equity markets were slightly weaker on a day that saw low volumes. Bonds weakened as room is being made for next week’s expected rate hike and that probably was the reason why the three auction was so poorly bid. Aussie bonds to drift a little weaker on the day and so too the Aussie equity market. Commodities were weaker on the day and that should impact both the equity market and Aussie Dollar.