Daily Flows & Insights – Debt Ceiling Optimism Grows

Daily Flow

  • For the month of April, there was a -$12Bill funding gap across the banking system.
  • That is, loans is exceeding deposits by $12Bill which means banks are having to chase funds to reduce this gap.
  • This may be reflected in the current wholesale TD and NCD market with banks offering elevated rates to attract.
  • Levels above 5% from 6 months – 5 years is commonplace for term deposits. NCD margins of +50 are also being regularly offered.

Debt Ceiling Optimism Grows

  • There is a sense of optimism around the debt ceiling with the agreement passing through the house overnight.
  • It is expected that the path through the senate will be less contentious.
  • As a result there was a relief rally across markets with both bonds and equities rallying.
  • Helping to drive yields lower was more talk from Fed members on a pause at their June meeting, giving them more time to assess the state of the economy
  • However after a strong private employment report overnight, there is upside risk to tonights non-farm payrolls which if comes to pass would strengthen the case for another hike at the June meeting.
  • In Australia we had another partial indicator of GDP with Private Capex following Construction Work Done the previous day coming in ahead of expectations
  • Despite the better than expected partials so far, growth is still expected to have slowed in the second quarter.
  • The final GDP release will be next Wednesday, the day after the RBA’s June board meeting.
  • There is currently a 1 in 4 chance of a hike by the RBA priced in for next week with a hike now nearly fully priced by the August meeting.
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Curve Team
David Flanagan