The Big Idea

Macro Picture – December 24, 2024

| December 24, 2024

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.

Dots up, liquidity better, vol higher, spreads wider after FOMC, oil softer, equity premium extraordinary, conditions tighter, inflows heavy everywhere

  • RATES: Dots rise to funds, term premia turn positive, real rates rise
  • LIQUIDITY: Treasury improves, Bunds erodes
  • VOLATILITY: Rate, equity vol up after FOMC
  • SPREADS: Wider after FOMC, CMBS outpaces IG
  • ENERGY: Oil softens after the Fed
  • EQUITIES: Equity risk premium closes at extraordinary -4 bp
  • FINANCIAL CONDITIONS: Tighter after the Fed
  • FLOWS: Heavy flows into fixed income, equity, money funds

Find detailed market reports and analysis at US Portfolio Strategy.

RATES

After the Dec FOMC, RRP drops to 4.25%, SOFR sets at 4.30%, fed funds at 4.33% and IORB at 4.40%

Source: Bloomberg, Santander US Capital Markets LLC

MBS repo rolls along to post Fri at SOFR + 5.3 bp

Source: Bloomberg, Santander US Capital Markets

RRP dips to $98B on Fri and rebounds to $116 on Mon

Source: Bloomberg, Santander US Capital Markets LLC

Fed dots rise on Dec 18 to more closely meet fed funds

Source: Bloomberg, Santander US Capital Markets LLC

Rates rise ahead of the Dec FOMC, and a hawkish cut pushes them higher

Source: Bloomberg, Santander US Capital Markets LLC

The 2s10s slope steepens ahead of the Dec FOMC, and a hawkish cut steepens it further

Source: Bloomberg, Santander US Capital Markets LLC

Breakeven inflation is almost unchanged after the Dec FOMC

Source: Bloomberg, Santander US Capital Markets LLC

Real rates jump after the Dec FOMC, with the 5Y and 10Y rates near their 5Y highs

Source: Bloomberg, Santander US Capital Markets LLC

Term premiums—yield left after returns from rolling T-bills—go positive across maturities for the first time in 5Y

Source: Bloomberg, Santander US Capital Markets LLC

US rates widen to all global benchmarks

Source: Bloomberg, Santander US Capital Markets LLC

LIQUIDITY

US Treasury liquidity improves after the Dec FOMC, Bunds erodes

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

After falling ahead of the Dec FOMC, rate (MOVE) and equity vol (VIX) edge higher

Source: Bloomberg, Santander US Capital Markets LLC

SPREADS

Nominal 30Y and 15Y MBS spreads widen slightly after the Dec FOMC

Source: Bloomberg, Santander US Capital Markets LLC

OAS on 30Y and 15Y MBS also widen after the Dec FOMC

Source: Bloomberg, Santander US Capital Markets LLC

Primary 30Y mortgage rates above 7%, according to Bankrate, keep purchase and refi volume low

Source: Bloomberg, Santander US Capital Markets LLC

Credit OAS still remains tight to MBS OAS

Source: Bloomberg, Santander US Capital Markets LLC

‘AAA’ CMBS LCFs steadily tighten inside IG 10Y CDS, now 17 bp tighter

Source: Bloomberg, S&P/LSTA, Santander US Capital Markets LLC

IG, EM and HY all widen after the Dec FOMC but still trade at historically tight spreads

Source: Bloomberg, Santander US Capital Markets LLC

Prices on leveraged loans fall after the Dec FOMC with the average loan closing Mon at $97.33 with the 100 largest loans averaging $97.97

Source: Bloomberg, S&P/LSTA, Santander US Capital Markets LLC

ENERGY

Oil prices fall back after the Dec FOMC, with West Texas Intermediate closing Mon at $69.24 and Brent crude at $72.96

Source: Bloomberg, Santander US Capital Markets LLC

Natural gas futures rise

Source: Bloomberg, Santander US Capital Markets LLC

EQUITIES

The equity yield premium—the S&P 500 1Y earnings yield spread to the 10Y Treasury—closes Mon at an extraordinary -4 bp

Source: Bloomberg, Santander US Capital Markets LLC

FINANCIAL CONDITIONS

Financial conditions tighten after the Dec FOMC

Source: Bloomberg, Santander US Capital Markets LLC

FLOWS

The Fed SOMA closes Dec 18 at $6.44T, down in the prior four weeks by $28B or 0.44%

Source: Bloomberg, H.4, Santander US Capital Markets LLC

Bank assets rise in the four weeks ending Dec 11 by $44B (0.19%) with liabilities off $11B (-0.05%)

Source: Bloomberg, H.8 SA, Santander US Capital Markets LLC

Money fund AUM notches another record to close Dec 11 at $6.77T

Source: Bloomberg, Santander US Capital Markets LLC

Fixed income funds and ETFs add $58B of AUM in the four weeks ending Dec 11 with equity up $71B

Source: ICI, Bloomberg, Santander US Capital Markets LLC

A surge in Treasury holdings pushes primary dealer balance sheets through Dec 11 to $506B, close to the highest in 5Y

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

Steven Abrahams
steven.abrahams@santander.us
1 (646) 776-7864

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