Rates collapse as unemployment rises to 4.3% and economy falters
A rapid decline in Treasury yields catches many by surprise, but not us.
Dear Readers,
Blink and you miss it—rates reprice quickly. Just a couple months ago, markets were focused on the balance of risks, implying that the risk of inflation and the risk of recession were pulling about even. Well, those days are over, and the balance of risks transformed into recession risk with two major economic releases.
Today’s letter includes 18 charts from around the global macro world, including a check on repo rates and SOFR metrics, some Fed balance sheet study, the coming flood of Treasury bills, today’s disastrous unemployment report, and yesterday’s horrific ISM manufacturing, price study on rates, and finally, a price study on bitcoin and its evolving relationship with the stock market. Did you do what I said and get your mortgage refi docs ready? Judging by the Fed’s MBS holdings, somebody certainly did.
Unchained empowers you to fully control your Bitcoin with a collaborative multisig vault, where you hold two of three keys and benefit from a dedicated Bitcoin security partner. Purchase bitcoin directly into your cold storage vault and eliminate exchange risks with Unchained's Trading Desk.
Unchained also offers the best IRA product in the industry, allowing you to easily roll over old 401(k)s or IRAs into Bitcoin while keeping control of your keys.
Don’t pay more taxes than you need to. Use code TBL for $100 off when you create an account.
Today’s charts
SOFR rates
SOFR volumes
Fed reserves as % of GDP
Fed’s MBS holdings
Fed’s MBS holdings monthly change
Reverse repo usage for both domestic and foreign counterparties
Treasury bills as a % of total Treasury securities
Unemployment rate
Jobless claims
ISM Manufacturing employment
2s
2s (weekly candlesticks)
10s
Delinquencies
Treasury yield curve (2s10s)
S&P 500
Bitcoin / S&P 500 correlation
Bitcoin
Repo update
I almost, for a split second, forgot it was month-end when I checked yesterday’s SOFR rate. Of course, month-end calendar dates drive repo rates, as banks rush to shore up any inventory with the appropriate funding. Sometimes, this rush creates a dislocation in the market. For example, let’s imagine that Wells Fargo had chunky Treasury inventory heading into July 31st. It tries to borrow funds at 5.4% but they are scarce, especially at month end, when counterparties might prefer to show T-bills to their clients instead of repo exposure to Wells. Wells then must raise its repo rate offered to 5.5% in order to attract the necessary financing. This is why SOFR spikes for month end, but then it should come back down, right?
It didn’t really retreat fully in July. Now August will bring another test, and we’ll genuinely be able to measure if reserves are becoming scarce. If they are, you can expect the end of QT and a resumption of QE, although the Fed will change the name this time. “Balance sheet maintenance,” or something of the sort, we imagine. SOFR’s increase, even if just the calendar effect, is something very closely monitored. We sense a shift in the size of the balance sheet.
Remember that higher rates are potentially simply a function of the quantity demanded by the market—as SOFR volumes rise (more inventory needing financing), it makes sense that the rate would tick up as more are fighting over the same funds. SOFR volume hit yet another record yesterday.
❌ DON’T WRITE YOUR SEED ON PAPER 📝
It’s estimated that ~30% of Bitcoin is lost forever. Poor seed phrase security is a big reason why. This is why we use Stamp Seed, a DIY kit that enables you to hammer your seed words into a durable plate of titanium using professional stamping tools.
Heat-resistant to 3,000ºF, rust-proof, crush-proof, and time-proof
Compact and easy to hide
No loose parts, such as screws or letter tiles
Take 15% off with code TBL. Get your Stamp Seed today!