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Bond market rally drives yields past Wall Street’s end-2024 targets
A global rally in government debt has already driven yields past many Wall Street targets for the end of 2024, highlighting how recent market moves have taken analysts by surprise. When banks began sending out their annual forecasts to clients a month ago, they were broadly united in the view that government bonds would rally next year as interest rates start to fall. But many forecasts have already been met more than a year early, as bigger-than-expected falls in inflation and a changed outlook from the US Federal Reserve have persuaded investors to bring forward their bets on rate cuts. (Financial Times | Dec 21)
Powell's pivot sows confusion over when and how fast Fed will cut
Federal Reserve Chair Jerome Powell was asked at a recent gathering what he does for fun. He paused, then grinned. “For me, a really big party — this is as fun as it gets — is a really good inflation report,” he said to laughter at Spelman College in Atlanta earlier this month. Powell is finally getting what he wanted: A meaningful decline in inflation. But that is creating a familiar headache by making it harder for Fed officials, who want to keep their options open, to dissuade investors that rate cuts are imminent. (The Wall Street Journal | Dec 20)
Jump in US overnight lending rates awakens fears of money market strains
A brief jump in US overnight lending rates this month is a likely harbinger of strains in money markets next year as the US government sells more Treasuries to cover its deficits, analysts have warned. Concerns were sparked by a sudden rise early this month in the rate for borrowing cash overnight in the market for short-term funds, a move that was not mirrored in the rate charged by the Federal Reserve to take in excess cash. (Financial Times | Dec 20)
The office market had it hard in 2023. Next year looks worse.
Office building owners, hammered by falling demand and high interest rates, struggled in 2023. But they mostly managed to stay afloat. That is going to be a lot harder to do next year. Many landlords have been able to extend their loans, often by putting in more capital. But a lot of those extensions are now expiring, and owners are losing hope that occupancy rates will rebound soon. That means many more office landlords will be compelled to pay off their mortgages, sell their properties at a steep discount, or hand their buildings over to their creditors. (The Wall Street Journal | Dec 19)
The kings of a colossal bond trade that's spooking regulators
Jonathan Hoffman, John Bonello, and Jonathan Tipermas share more than just similar first names. They’re the driving force behind a gigantic wager on government debt that’s been giving regulators sleepless nights. They and their teams are top players in the “basis trade,” a bet by a few of the world’s biggest hedge funds that profit from the tiny price gaps between Treasuries and derivatives known as futures. That makes them some of the most important individuals in finance today. (Bloomberg Markets | Dec 19)
Higher rates trigger big retreat in global non-bank sector
Multi-trillion dollar non-banking finance saw its first major retreat last year since the global financial crisis in 2009, with the shrinkage due to higher interest rates hitting asset valuations, a global watchdog said on Monday. Non-banks, such as investment funds and insurers, have come under closer regulatory scrutiny after the sector, less regulated than banks in parts, grew sharply after the financial crisis as money shifted from the more heavily regulated lenders. (Reuters | Dec 18)
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