Markets wary of U.K. finances

Published Date 10/3/2022

The 10 yr. note at 9 am ET 3.70% -13 bps from Friday, MBS prices +55 bps. Stock indexes improved in pre-open trading.

Interest rates continue to consolidate the recent spike in rates. The 10 yr. note last Tuesday hit 4.00% since then its yield down 30 bps as of this morning, leading some to conjecture rates may have peaked, reasoning rates have discounted the anticipated FF rate increases coming in November and December. That is a hugely optimistic outlook and a stretch to believe.

OPEC+ is going to meet this week, according to oil traders the group will cut back output by a million barrels a day to keep prices from declining; crude oil up about $5.00 this morning.

The UK last week sent markets spinning with a plan that would lower tax rates for high income earners as its economy drops deeper into recession, today news from UK Finance Minister Kwarteng that the UK is going to scrap the part of its fiscal stimulus plan that called for a tax cut for high earners. That news has helped prop up the British pound and UK government bond market and helping the US rates.

Another support for rates this morning, Credit Suisse’s financial health. The cost of insuring Credit Suisse debt against default, as measured by credit-default swaps, continued to climb. The bank went out on a few limbs with its risk taking that included a $5.1 billion hit last year from client Archegos Capital Management. The Wall Street Journal reported yesterday that Chief Executive Ulrich Körner told employees late last week that the bank was at a critical moment before it presents a strategy update outlining plans for the investment bank on Oct. 27.

At 9:30 am the DJIA opened +337, NASDAQ +83, S&P +40. 10 yr. at 9:30 am 3.68% -14 bps. FNMA 5.5 30 yr. coupon +52 bps from Friday and +11 bp from 9:30 am Friday morning.

At 10 am Sept ISM manufacturing index expected at 52.4, dropped to 50.9 lowest since May 2020. August construction spending declined 0.7% against -0.3% estimates.

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Source: TBWS

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