The Big Idea
Macro Picture: Rates, liquidity, volatility, spreads, energy, equities, financial conditions and flows
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
- RATES: Fed funds futures get closer to Fed dots
- LIQUIDITY: Treasury, Bund liquidity stablizes
- VOLATILITY: Rate vol drops, equity vol, too
- SPREADS: Almost all spreads tighten
- ENERGY: Oil prices soften further
- EQUITIES: Equity risk premium holds near a historic tight
- FINANCIAL CONDITIONS: Strong equity, tight spreads, loose conditions
- FLOWS: Another money market AUM record
RATES
RRP sits at 4.55%, fed funds at 4.58%, SOFR AT 4.60% and IORB at 4.65% with funds futures pricing an 85% chance of a 25 bp cut on Dec 18

Source: Bloomberg, Santander US Capital Markets LLC
No signs of stress in MBS repo as it posts Fri at SOFR + 5.4 bp

Source: Bloomberg, Santander US Capital Markets
RRP settles Mon at $153B

Source: Bloomberg, Santander US Capital Markets LLC
Market pricing of the Fed path keeps getting closer to the dots, with new dots due Dec 18

Source: Bloomberg, Santander US Capital Markets LLC
Rates drop in late Nov and early Dec, led by the front end as markets price in more easing

Source: Bloomberg, Santander US Capital Markets LLC
The slope of 2s10s steepens by 7 bp, 5s30s by 3 bp

Source: Bloomberg, Santander US Capital Markets LLC
Breakeven inflation drifts lower

Source: Bloomberg, Santander US Capital Markets LLC
Real rates drift lower, too

Source: Bloomberg, Santander US Capital Markets LLC
Term premiums—yield left after returns from rolling T-bills—come off their mid-Nov peaks

Source: Bloomberg, Santander US Capital Markets LLC
US rates tighten to all global benchmarks except Germany

Source: Bloomberg, Santander US Capital Markets LLC
LIQUIDITY
Stable Treasury and Bund liquidity since the end of Oct

Note: The index reflects the average difference in yield between US Treasury issues with a 1-year or longer maturity and the intra-day Bloomberg relative value curve fitter. In liquid markets, deviations go away quickly, and index values are low. In illiquid markets, deviations persist, and index values are high.
Source: Bloomberg, Santander US Capital Markets LLC.
VOLATILITY
Rate (MOVE) drops to its lowest level since late May, equity vol (VIX) declines

Source: Bloomberg, Santander US Capital Markets LLC
SPREADS
Nominal 30Y and 15Y MBS spreads drop close to their 5Y median

Source: Bloomberg, Santander US Capital Markets LLC
OAS on 30Y MBS drops to its 5Y median with 15Y MBS at its 26th percentile

Source: Bloomberg, Santander US Capital Markets LLC
Primary 30Y mortgage rates dip below 7% into Dec, according to Bankrate, but refi and purchase activity (distorted by Thanksgiving) stay low

Source: Bloomberg, Santander US Capital Markets LLC
Credit OAS remains tight to MBS OAS

Source: Bloomberg, Santander US Capital Markets LLC
‘AAA’ CMBS LCFs slowly tighten inside IG 10Y CDS, now nearly 9 bp tighter

Source: Bloomberg, S&P/LSTA, Santander US Capital Markets LLC
IG, EM and HY all keep trading at the tightest levels in at least 5Y, with EM and HY at historically tight spreads to IG

Source: Bloomberg, Santander US Capital Markets LLC
Prices on leveraged loans keep rising, the average loan closing Mon at $97.35 with the 100 largest loans averaging $98.02

Source: Bloomberg, S&P/LSTA, Santander US Capital Markets LLC
ENERGY
Soft oil prices suggest pessimism over demand, with West Texas Intermediate closing Mon at $68.14 and Brent crude at $71.92

Source: Bloomberg, Santander US Capital Markets LLC
Natural gas futures slip

Source: Bloomberg, Santander US Capital Markets LLC
EQUITIES
The equity yield premium—the S&P 500 earnings yield spread to the 10Y Treasury—closes Mon at 29 bp

Source: Bloomberg, Santander US Capital Markets LLC
FINANCIAL CONDITIONS
Rising equity prices, tight credit spreads keep financial conditions on the looser side

Source: Bloomberg, Santander US Capital Markets LLC
FLOWS
The Fed SOMA closes Dec 4 at $6.45T, down in the prior four weeks by $42B or 0.65%

Source: Bloomberg, H.4, Santander US Capital Markets LLC
Bank assets drop in the four weeks ending Nov 27 by $71B (-0.30%) with liabilities down $76B (-0.36%)

Source: Bloomberg, H.8 SA, Santander US Capital Markets LLC
Money fund AUM notches another record to close Nov 27 at $6.68T

Source: Bloomberg, Santander US Capital Markets LLC
Fixed income funds and ETFs add $57B of AUM in the four weeks ending Nov 27 with equity up $58B

Source: ICI, Bloomberg, Santander US Capital Markets LLC
A surge in Treasury holdings pushes primary dealer balance sheets through Nov 27 to $501B

Source: Federal Reserve, Bloomberg, Santander US Capital Markets LLC
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