Kevin Flanagan

Head of Fixed Income Strategy @WisdomTreeFunds. Host of Basis Points podcast. Disclosures:

[Kevin Flanagan @KevinFlanaganWT]

did those other countries get downgraded by Moody's and pass a big, beautiful bill or is it just a global aversion to long duration

[Kevin Flanagan @KevinFlanaganWT]

Interestingly, one could say that ending QT completely could be akin to a rate cut of sorts, and then re-starting QE could serve as another.
Our advice is to stay tuned and try not to get too caught up in the day-to-day headlines and tweets that are out there because this is going to be a very fluid situation

[Kevin Flanagan @KevinFlanaganWT]

Remember, the key here is for financial and non-financial companies to be able to fund themselves. While there has been some tightening up in conditions in recent trading sessions, there is not any sign of worrisome funding pressures at this point.

[Kevin Flanagan @KevinFlanaganWT]

some thoughts on the Treasury market turbulence...i think it's a confluence of factors all coming together...reversal of the flight-to-quality rally, resulting in bets it would continue to be unwound, selling to raise cash (reversal of the basis trade)...NOT active retaliation by China. They hold too many Treasuries hence it would be counterproductive (losses)...Japan and China have been reducing UST holdings over the last year but it is orderly and rates still fell at times during this period
if it got to the point of creating 'plumbing' issues in the funds market, the Fed could stop QT in Treasuries altogether and start to re-buy (QE)...they wouldn't necessarily have to cut rates

[Kevin Flanagan @KevinFlanaganWT]

I read a story where some one asked: if the US raising tariffs produces recession fears and higher inflation concerns for the US, then wouldn't the same potential results apply to countries/regions that impose retaliatory counter/tariffs, i.e. raises there existing tariffs, like the EU?

[Kevin Flanagan @KevinFlanaganWT]

Chart of the week...Rip Van Winkle woke up from his nap starting on pre-election Day and said: Oh , the UST 10-yr yield hasn't changed at all...what's all the fuss?

[Kevin Flanagan @KevinFlanaganWT]

what else did we learn this week? The Treasury 10-yr yield has already discounted the potential for reduced economic growth (not a recession) and has also been supported by ‘risk-off’ sentiment, while arguably ignoring tariff-induced inflation probabilities…validation of the rally will be required at some point yet again

[Kevin Flanagan @KevinFlanaganWT]

what did we learn this week? it appears as if the Fed's concerns surrounding potential adverse impacts on the economy from tariffs may be modestly outweighing the potential effects on inflation…the Fed Chair actually revived the word “transitory” to describe possible tariff-induced price pressures

[Kevin Flanagan @KevinFlanaganWT]

FOMC next week...looking for QT to be next on the list for Powell & Co. Could be ending balance sheet rundown by mid-year

[Kevin Flanagan @KevinFlanaganWT]

March 2024 rate cut expectations now below 50%...look at the comps...it's going to be a bumpy ride

[Kevin Flanagan @KevinFlanaganWT]

The recent rally in Treasuries has been one for the ages. The UST-10yr yield plummeted nearly -90bp in the process. Now the key question was: would such a move be validated? Based on the November jobs report, the first test to this rally, the answer is no.

[Kevin Flanagan @KevinFlanaganWT]

The 3-mo. moving average for payrolls rose +12k to +204k…look how steady job growth has been over the last 6 mos.

[Kevin Flanagan @KevinFlanaganWT]

did the Fed cut rates without telling anyone? Chicago Fed National Financial Conditions Index now at its lowest levels in well over two years

[Kevin Flanagan @KevinFlanaganWT]

a round trip of an incredible 160bp in three months. UST 10-yr yield needs 'validation' to stay at these levels

[Kevin Flanagan @KevinFlanaganWT]

the change in narrative and attendant UST yields from Feb 2nd has been astounding! You're now pricing in nearly 50% odds for 3 more rate hikes!

[Kevin Flanagan @KevinFlanaganWT]

i never really thought Powell's presser last week was as 'dovish' as portrayed...what was he gonna tell the bond market 'you've got it all wrong'...now markets are looking squarely at a 5-5.25% fed funds rate

[Nick Timiraos @NickTimiraos]

Powell, paraphrased: Despite many people believing (or hoping) the Fed's recent inflation projections were too high because inflation would come down faster, the Fed didn't see it that way and, given last week's job report, still doesn't.

[Kevin Flanagan @KevinFlanaganWT]

so Mr. Powell, is there anything bothering you? Well, yes there is...I've raised rates 350bp since May and financial conditions are right back where they were then...

[Kevin Flanagan @KevinFlanaganWT]

@kgreifeld without a doubt...if the Fed is going to at least 5% on fed funds and staying there the current #Treasury 2 yr yield makes no sense

[Kevin Flanagan @KevinFlanaganWT]

4.23% #Treasury 2 yr...money & bond markets certainly not buying what Powell & Co. are selling

[Kevin Flanagan @KevinFlanaganWT]

that's assuming the #Treasury 2 yr yield stays constant. It could very well increase with the new dot plot

[Alf @MacroAlf]

The Fed has never hiked their Fed Funds rate past the level of 2y Treasury yields.

The widely expected 50 bps hike in December will basically get us there

Any additional hike in 2023 will push us through uncharted territory from this point of view.