9 Jul 2014
Big front end rate move coming in the US - SocGen
FXStreet (Bali) - There’s a big front end rate move in the US coming, notes Kit Juckes, Head of FX at Societe Generale.
Key Quotes
"The average differential between 2yr US swap rates and the 1-month Libor rate 24 hours before the first rate hike in each of the last four tightening moves was 116bp. Today, the spread is 49bp, up from a low of 27bp in early February."
"This cycle is tricky in that the first proper tightening wont be the same as the first FF hikes. Firstly, Fed Funds will go back to 0.25%, with the help of reverse repos."
"Then, a hiking cycle will start. I am dating the start of the hiking cycle as the day when fed Funds start to move higher and I reckon there will be a lot more discussion around this from October onwards. Hence, I want to be short the very front end of the US curve before September ends, at the latest."
Key Quotes
"The average differential between 2yr US swap rates and the 1-month Libor rate 24 hours before the first rate hike in each of the last four tightening moves was 116bp. Today, the spread is 49bp, up from a low of 27bp in early February."
"This cycle is tricky in that the first proper tightening wont be the same as the first FF hikes. Firstly, Fed Funds will go back to 0.25%, with the help of reverse repos."
"Then, a hiking cycle will start. I am dating the start of the hiking cycle as the day when fed Funds start to move higher and I reckon there will be a lot more discussion around this from October onwards. Hence, I want to be short the very front end of the US curve before September ends, at the latest."