US Economic Chartbooks
Please see our Economic Week Ahead Chartbook for a discussion of next week's economic releases provided in a visually friendly format that includes graphs, brief descriptions of SMR's forecasts, and links to detailed data previews. If you missed anything from last week, see our Economic Week in Review Chartbook for a look back at the releases with links to full analyses.
Fixed Income Focus: FOMC, Payrolls On Tap...Treasury Financing Preview
Treasury yields gapped higher to open the week in response to a sigh-of-relief/risk-on trade following the weekend's in-line with expectations French election results, and the market never recovered. The 2-year/10-year spread was about 3 basis points tighter on the week through early Friday afternoon, and the 5-year/30-year spread was 1 to 2 basis points wider, but curve activity overall was not especially meaningful, with market participants waiting on next week's FOMC decision and Friday's Nonfarm Payrolls release.
Treasury will announce borrowing projections for the next two quarters and details of the May refunding next week. We've revised our projection for current quarter borrowing modestly higher. Due in part to the debt limit, bill supply is expected to contract by $118 billion in the first half of this year. Treasury asked dealers whether it should holder higher cash balances - that's a moot point until the debt limit is increased. Treasury is also revisiting the idea of selling bonds with maturities longer than 30 years.
Fixed Income Focus
Could Fed Profitability Be A Factor In Unwinding the Balance Sheet?
In this note we make that case that the FOMC should take into account the risk of incurring persistent losses as the interest rate on reserves (IOER) is increased. This risk could be diminished if the size of the system open market account (SOMA) is reduced relatively quickly in comparison to the impending increases in the IOER. Our basic concern is that losses, which would result in the suspension of remittances to the Treasury Department, could become a political "hot Potato" inviting unwanted Congressional intrusion, compromising Fed independence.
Federal Reserve Research
SMRA Beige Book Activity Index Steady at 1.00 in April Report
The SMRA Beige Book Activity Index (BBAI) was 1.00 in April, unchanged from the March Beige Book. On balance, we find the tone of the report somewhat mixed, but on balance positive. Overall conditions remained consistent with modest-to-moderate expansion. Conditions were described as showing "modest" or "moderate" growth in all 12 Districts. Growth was "modest" for New York, Philadelphia, Richmond, Atlanta, St. Louis, Minneapolis, and Kansas City. Growth was "moderate" for Cleveland, Chicago, Dallas, and San Francisco. Boston split the difference and said growth as modest-to-moderate for a third report in a row. The economies of the 12 Districts continue to turn out solid economic growth, but without much sign of any momentum higher.
Viewpoint for Minutes of March 14-15 FOMC Meeting
The minutes of the March 14-15 FOMC meeting were much as expected regarding the outlook for interest rate policy. There was also a fairly extensive discussion about planning for phasing out or ending the policy of reinvestments in the Fed's balance sheet holdings. There was a hint that the FOMC could announce and possibly implement a change in reinvestment policy by the end of 2017, sooner than previously anticipated.
Please click the link to read the "Viewpoint on Minutes of March 14-15 FOMC meeting".