Related insights_tr
The front of the USD curve continues to be buffeted by debt ceiling worries. The point of peak stress is set at 1 June where the 1M T bill is yielding close to 7%. Slightly further out, T bill rates are much closer to 5%. It probably does not help that Fitch has put the US on negative watch. Beyond the debt ceiling issue, the market is getting increasingly convinced that the Fed may have to deliver a hike in July (74% odds) after skipping June. Fed minutes released last night indicate a split on whether further interest rate increases are needed. At this stage in the cycle, policy flexibility will be key. Assuming that the debt ceiling gets lifted soon (limiting damage to the real economy) and no imminent banking sector stresses, it is reasonable that markets price in the risk of another move in the immediate few months.
However, conviction will be low given how fast the outlook can shift. To put things into perspective, the market was pricing in meaningful odds of a June cut and an end-24 Fed funds rate of 2.7% just over two weeks ago. Now, another hike is deemed more likely, while cuts out to 2024 got aggressively pared. The implied Fed funds rate for end-2024 now stands at 3.38%, up almost 70bps in a short span. At the most hawkish point in early March, the market was looking at a rate in excess of 4%. Noting that bearish momentum on UST is still there and factoring in another 50bps or so of adjustment higher in the implied Fed funds rate for end-2024, puts a soft cap of around 4.5% for 2Y yields. Meanwhile, we will be watching financial conditions closely. The levels of stresses thus far do not seem sufficient to warrant concern just yet but things could change quickly if yields take another surge higher. We would also be monitoring the 2Y/10Y spread to get a sense of recession worries and banking system stress. Deeper inversion of the 2Y/10Y towards -80bps (from -64bps now) would be a warning signal for us.
Topic
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong SAR
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.