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
CORE STRATEGY: REMAINING TACTICALLY CAUTIOUS, TGA RUNDOWN + EARLY JAN FLOWS COULD PRODUCE NEEDED SPARK In our view, this cycle is far from over. However, until bonds find a bottom and the USD peaks, it’s prudent for more tactically-minded crypto investors to remain nimble and ready to capitalize on opportunities once a trend reversal is confirmed. While this could happen as early as next week due to early-January inflows, additional...
CORE STRATEGY: FOCUS ON MAJORS, KEEP HEAD ON SWIVEL UNTIL BONDS/DXY RELENT We think it's right to expect a bounce into year-end, potentially starting tomorrow if PCE data comes in soft. In our view, this cycle is far from over, but until bonds find a bottom and the USD tops, it’s likely best for the more tactical investor to stay nimble and prepared for opportunities upon confirmation of this trend...
CORE STRATEGY Our base case assumes that the macro environment will remain accommodative for crypto through year-end. However, in light of recent market action, we remain alert for signs of a local top (not a cycle top). That said, it is difficult to justify a risk-averse stance at this stage and think it is right to lean into this altcoin rally. Source: TradingView, Fundstrat Source: TradingView, Fundstrat STRONG DOLLAR +...
Today's employment numbers broadly met investor expectations, placating a nervous market. Risk assets rallied, aligning with our view that yesterday's de-risking would not persist through today. Yields continued their downward trajectory, and Fed funds futures also declined, reflecting the market's adherence to the Fed's dovish messaging. Yields Falling: Source: TradingView Fed Funds Futures Showing More Cuts: Source: TradingView Oil prices nearing YTD lows likely assisted in alleviating near-term concerns about...
