Compelling Case for Continuation
Weathering the Storm
Heading into Q1, the key risks identified were: (1) A potential QRA supply shock, as long-term interest rates could surge due to a possible shift in bond issuance towards longer-duration securities, (2) the repricing of interest rate cuts, as the Federal Reserve downplayed expectations regarding the timing and frequency of such cuts, and (3) concerns regarding the dynamics between the expiration of the Reverse Repurchase Agreement (RRP) and the conclusion of Quantitative Tightening (QT) – specifically, if the RRP, a current liquidity source in the market, were to be depleted while QT persisted, this could result in a reduction of bank reserves below the minimum level deemed necessary for the banking system.
In recent weeks, we have successfully navigated these risks, potentially supported by additional inflows from the newly introduced spot ETFs.
As noted last week, the market responded positively to a coupon intensive QRA, indicating that demand for coupons at these levels exceeded expectations. This suggests that the market had effectively anticipated the treasury coupon issuance in advance. Since mid-January, there has been a significant shift in Fed funds futures. They have now largely discounted the previously anticipated aggressive rate ...Reports you may have missed
LESSONS FROM OPEC We have witnessed a significant market panic partially related to formerly locked BTC hitting the order books. The major sources of supply include:Mt. Gox – 141,686 BTCUS Government – 8,100 BTCGerman Government – 50,000 BTC At current prices, this would equate to over $12 billion in supply. This threat, combined with an inhospitable macro backdrop (rising DXY, higher rate expectations, hawkish Fed), has brought BTC down to...
LDO Risk/Reward Looks Good Here, Immediate-term Macro Picture Still Uncertain (Core Strategy Rebalance)
FLOWS AND SENTIMENT STILL SUBDUED Last week, we received a better-than-expected CPI print, but the DXY continued to move higher due to global weakness and a hawkish Fed. We discussed the risks appearing in the metrics we use to gauge sentiment and flows. The overall lack of follow-through in the crypto market was evident. Volumes, net ETP flows, the Coinbase discount, stablecoin market cap trend, and search interest for key...
OVERALL, IT WAS A GOOD CPI/FOMC DAY As any market observer knows by now, CPI came in remarkably cool yesterday. May CPI data was soft across the board, with headline inflation at 0.0% M/M vs. 0.1% expected and core inflation at 0.2% M/M vs. 0.3% expected. The unexpected data fueled a violent rally across all risk assets as rates fell, and the futures market started to price in additional cuts,...
STX Remains Compelling Beta Exposure, Miners to Outperform in Lower Rate Environment
RATE EXPECTATIONS MOVING LOWER Last week, we discussed how rate expectations were a barrier to crypto moving higher and that we anticipate continued non-recessionary but soft economic data will help spur flows. Fast forward to this week, and we have seen a cool manufacturing PMI, a soft JOLTS report, and a services PMI in which the price component was below market expectations. The remaining important data for this week includes...
Articles Read 1/1
🎁 Unlock 1 extra article by joining our Community!
You’ve reached your limit of 1 free monthly articles. Please enter your email to unlock 1 more articles.
Already have an account? Sign In 8a9f05-4b82f3-52af23-11e89d-99e26c
Already have an account? Sign In 8a9f05-4b82f3-52af23-11e89d-99e26c