FED: Bank Stocks Up, Swap Spreads Wider With Barr Leaving As VC Supervision

Jan-06 16:43
Michael Barr's resignation as the Fed's Vice Chair for Supervision effective end-February (as opposed to staying on for his full term to Jul 2026) resolves one of the question marks for the Fed leadership coming into this year, with President-elect Trump having been expected to want to replace him (Barr was appointed by Pres Biden in 2022). That's precedented: VC for Supervision Tarullo resigned after Trump's inauguration in 2017 for example. As such Monday's announcement that Barr would leave the position early was unsurprising.
  • Another question, however, was whether Barr would stay on as a Governor through the full term to 2032 (In 2017, Tarullo resigned both the VC position and his Governorship). Since Barr has decided to stay on, that means there are no vacancies in the Board of Governors for Trump to fill. So absent any governors resigning, Trump will have to choose one of the existing governors as the next VC for Supervision. 
  • In this context, Gov Bowman - a Trump appointee in 2018, and with ample experience in banking - appears to be the most likely choice. She has advocated a lighter regulatory approach than her colleagues.
  • Following Barr's resignation announcement, banking stocks are up 1.5%, while swap spreads - which had moved increasingly negative over Barr's term - moved wider in anticipation of less stringent regulations on banks' balance sheets (10Y swap +1.5bp to -48.3bp).
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10Y Swap Spreads, intraday. Source: Bloomberg, MNI

Historical bullets

MNI UST Issuance Deep Dive: Dec 2024 (2/2)

Dec-06 21:53

Throughout November’s policy and market volatility, though, Treasury auctions largely impressed, with 5 of 7 nominal coupon sales trading through.

  • Auction Results: November’s nominal coupon auctions were generally strong, with five out of seven auctions trading-through, of which four saw a positive reading on MNI’s Relative Strength Indicator (RSI). The remaining two auctions; 3 and 20-year auctions tailed. See page 2.
  • Upcoming Supply: Issuance resumes next week with sales of $58B in 3Y Note, $39B in 10Y Note (reopen), and $22B in 30Y Bond (reopen). December is set to see $15B in nominal Treasury coupon sales, in addition to $22B in 5Y TIPS and $28B FRN for a total of $365B – slightly below the Oct and Nov totals of $369B which were joint-highest since Oct 2021.
  • MNI's review includes a calendar of upcoming auctions and buyback operations.

US TSYS/SUPPLY: MNI UST Issuance Deep Dive: Dec 2024 (1/2)

Dec-06 21:51

MNI's latest US Treasury Issuance Deep Dive has just been published (PDF link here):

November proved a dramatic month for Treasuries. Yields were volatile before and after the Nov 5 election - after ending October at 4.28%, 10Y yields peaked at five-and-a-half-month high just above 4.50% mid-month before closing November just below 4.18%, as markets attempted to price in the implications of a Republican “sweep”. 

  • Also buffeting rates was speculation over the would-be successor to Treasury Secretary Yellen. President-elect Trump’s selection of hedge fund manager Scott Bessent was greeted with bull flattening in the curve, implying perhaps that he’s seen as more cautious on fiscal deficits than some of the alternatives (he has expressed support for halving the annual budget shortfall to 3% of GDP).
  • The first quarterly Refunding process of Bessent’s Treasury is in early February, by which point we may start to have a better sense of the incoming administration’s approach to both fiscal policy and to more issuance-specific considerations such as duration management.
  • Bessent for instance has argued that Yellen’s Treasury erred from a risk management perspective by boosting short-duration issuance, and there are suggestions he would be in favor of reversing course, telling Bloomberg in June “When rates are very low, you should extend duration…I think it’s very unfortunate what Secretary Yellen’s doing. She’s financing at the front end, and she’s making a bet on the carry trade, which is not good risk management.”

US LABOR MARKET: MNI US Employment Insight: Soft Enough To Keep Fed Cutting

Dec-06 21:05

Our latest Employment Insight has just been published and emailed to subscribers.