Halister News

(Bloomberg) -- Risk for this week’s FOMC is that “the Fed leans hawkishly out of the meeting and the market needs to reprice to higher yields,” BMO strategists led by Margaret Kerins say in March 11 note.

• If 2s break above 95bp “congestion area,” then next target is 98.7bp, although front-end is “already oversold” and on “very near-term technical basis, 2yr yields may not have much further to sell off”
• A notably weak or strong Feb. CPI print on morning of Wednesday’s FOMC press conference “could swing language” in the statement although previously submitted SEP forecasts would be unaltered

(Bloomberg) -- Treasury bill rates may remain elevated after tax deadline amid increased issuance, a “more optimistic” FOMC statement and muted dealer appetite, Citi strategists Vikram Rai and Jack Muller wrote in note.

• 1-mo. bill rate 0.2593%; 3-mo. 0.3205%
• “Yield alternatives have some role to play but T-bill rates are driven more by supply-demand than anything else”
  • O/N RRP dynamics also have a “limited influence” on bill rates
• Issuance likely to remain elevated because Treasury has committed to increasing bill supply at expense of coupons and TIPS to address liquidity concerns
  • Treasury may also announce addition of 2-mo. bill auction
• While last payroll report is “unlikely to turn the March or April meeting into a live one,” probability of a rate hike in June and beyond should go up, which would be bearish for front-end
• Primary dealer balance sheets “remain heavy” with USTs, which has muted overall dealer appetites
• Spread between institutional prime funds and govt funds is at 16bps, which “remains compelling in this low yield environment”
  • May offset outflows from prime funds into govt funds, so the possibility of T-bills richening as compliance deadline nears is “less significant as long as spread products remain attractive”

(Bloomberg) -- “Treasury yield curve allows three more rate increases this year, a direction many economists think will gain support from dot plot shifts released with the FOMC statement,” FTN strategist Jim Vogel says in note.

• “10-yr UST should retreat to the lower 1.90s on retail sales weakness, while 5s are likely to hold above 1.46% as the Fed outlook is more important to that part of the curve”
• Other observations from strategist morning notes:
• BMO (Aaron Kohli): “With several risk markets looking frothy after weeks of gains, the key for the Fed will be to keep June on the table while not tightening financial conditions so much that risk-appetite corrects badly,” and “they could achieve this, since conditions are still historically loose”
• CRT (David Ader): “We favor a bit of steepening,” and “the illogic here is that the move underway is more corrective in the context of a range and not a bigger directional play”
• Marty Mitchell (independent): “With the 10yr trading so close to the 2.00% level, it would be best to see it take a peak on the other side of 2.00% before that bounce occurs,” and “we expect that buyers are prepared to add to long exposures behind the 2.00% level, particularly with U.S. yields so attractive compared to what investors can find overseas”

Economic Release Details: {INFUTOTY Index ECOD} --PRADEEP KURUP

(Bloomberg) -- Further ECB rate cuts can’t be entirely discounted although the cbank set the bar high; hold longs in reds Eonia as a cheap option to benefit from further cuts, writes JPMorgan strategists led by Fabio Bassi in a client note.

• Stay long 3Y Germany on possible repricing of easing, removal of depo floor, bond scarcity
• TLTROs, larger-than-expected QE argue for a flatter curve, tighter intra-EMU spreads; bullish for long-end Germany and 10s30s flatteners
• In core, express search for yield theme via long 9Y Netherlands vs Germany, 10s/30s OAT flattener outright or vs Germany, 5s10s Belgium flattener vs France
• In periphery, hold long 10Y Spain vs Germany, long 30Y Greece outright; stay long red Eonia, June 2016 ECB OIS, take profit on June 16 Euribor 1x2 put spread
• Hold June 16 Buxl swap spread wideners on potential increase in scarcity premium

(Bloomberg) -- Philippine banks are expected to follow anti-money laundering law and “part of expectation is that there’s an alert to be triggered” when unusually large inflow enters, Bangko Sentral ng Pilipinas Deputy Governor Nestor Espenilla tells reporters on sidelines of bankers’ association event in Manila.

• BSP rules enumerate processes for customer due diligence, monitoring of transactions, internal controls
• BSP also has rating system for anti-money laundering compliance although there’s some flexibility and implementation may vary for each bank
• As investigation of alleged funds stolen from Bangladesh Bank that entered Philippine financial system involves numerous accounts, Anti-Money Laundering Council conducting probe, Espenilla says
• NOTE: Tetangco Says Anti-Laundering Council Continuing to Take Action Link
• NOTE: Philippines’ SEC Chairman Expects Recovery in Some Stolen Funds Link
• NOTE: Philippine Bankers Group Sees Enhanced Measures Vs Laundering Link