In this regular podcast series, MUFG subject matter experts within our business discuss the forces, indications, and policies that impact the U.S. economy and financial markets, and provide updates to their economic outlooks and forecasts for the weeks, months, and years ahead.
The Kings of Carry, Convexity Cross, and U.S. Debt Ceiling Brinksmanship
In today’s episode, MUFG Head of Prepayment Modeling and Strategy, Glenn Schultz, reviews April remittance data highlighting the ‘Kings of Carry’ and relative value around the convexity cross, and the outlook for the agency mortgage basis given the FDIC liquidations current U.S. budget negotiation. He also discusses the possible implications of the debt ceiling brinksmanship on both the GNMA and Conventional MBS sectors.
What to expect as Japan returns from Golden Week
In today's episode, MUFG Chief Japan Strategist Takahiro Sekido reviews the JSDA data for March, as well as April fiscal and BoJ fund flows and implications. He also shares his views on spot USDJPY, Yen rates, and Yen basis.
May FOMC Preview, the last 25bp hike as attention turns to the debt ceiling?
George Goncalves, MUFG Head of U.S. Macro Strategy, thinks that given the macro to markets setup, the Fed shouldn’t be hiking at this point, but they likely will, so long as the rates market is pricing in over a 75% chance of rate hike come the time of the May FOMC rate decision meeting conclusion. Thus, the Fed is on track to deliver another 25bp hike and take up the range for the Fed Funds target rate to 5-5.25%. That said, he also believes that this could ultimately be the last hike of what was one of the most aggressive Fed hiking cycles in recent history.
The continued slide lower in U.S. economic activity with ongoing improvements in inflation measures, coupled with renewed banking turmoil and a more pressing U.S. debt ceiling impasse ahead warrants a pause, but again the Fed will likely hike at the May meeting. Therefore, Chair Powell will try to convey a neutral message and not sound overly hawkish or dovish at this juncture. We expect the presser to be dominated by regional bank concerns, especially after witnessing another bank failure this year (and the third such bank failure happened days before the FOMC decision).
Overall, the Fed’s rate path from here is fraught with many challenges. For example, until financial conditions worsen (which we believe they will into the 2nd half of 2023) and/or if there were to be a cascading of bank related trouble in the near future, unless things are glaringly and perpetually bad, the Fed will try to look past the recent bank failures. Reason being is that they want to push back on the market pricing of rate cuts and hold the line – conveying that they are planning to hold rates “higher for longer” to ensure all these rate hikes are working at wrestling inflation closer to their 2% target. The tricky part will be that holding rates at these even higher rates levels will likely expose further weakness in the banking system and potentially the private credit sector as well.
Net, we won’t know for sure if this is the last rate hike – that will hinge on their assessment that enough has been done. The markets still have to contend with NFP and CPI ahead (which depending on the messaging from the Fed and the outcome of this upcoming data batch, could re-introduce some rate hike pricing into June). However, in our view the outlook will likely worsen from here and uncertainty may go up a lot if the debt ceiling process is taken down to the wire. If so, the key thing to watch post FOMC will be how Fed speakers react to the data and debt ceiling developments.
Small but significant changes at the Ueda-led Bank of Japan
In today’s episode, MUFG Chief Japan Strategist Takahiro Sekido reviews the April Bank of Japan meeting, discusses Japanese life insurance company investment plans and shares potential triggers for Japanese markets in May. He also shares his views on spot Dollar/Yen, Yen rates, and Yen basis.
BoJ Governor Ueda’s first policy meeting
In today’s episode, MUFG Chief Japan Strategist Takahiro Sekido discusses the Lower House elections and shares his outlook for the Bank of Japan meeting this week. He also shares his views on spot Dollar / Yen, Yen rates, and Yen basis.
The MUFG Global Markets Podcast: Combating climate change and supporting transition financing
In today’s episode and ahead of Earth Day this weekend, Dr. Tobi Petrocelli, MUFG Head of Sustainability & Transition Finance Strategy, and Beth Gilroy, Deputy Head of Sustainability & ESRM, discuss how MUFG is helping to resolve environmental and social issues focusing on combating climate change and supporting transition financing. We also review two key publications – our recently released MUFG Progress Report, which illustrates how we as a global institution are moving towards carbon neutrality and our MUFG Transition Whitepaper, which was published last October, in which we share our sustainability views globally and summarize the decarbonization efforts of Japanese companies as well as the energy policy of Japan.
The MUFG Global Markets Podcast: Stability returns but too soon to say the coast is clear…
George Goncalves, MUFG Head of U.S. Macro Strategy, is encouraged that stability has returned to the broader financial marketplace and the banks in particular, but he believes that it’s too soon to say the coast is clear. In his view, without a new negative catalyst, it’s understandable to see markets and policymakers return to their concerns over where we are in the inflation versus growth debate. And it’s true that vols in the broader asset classes have receded from the extreme levels seen in March. The concern is that after having witnessed some of the biggest moves in history, they can always come back and be disruptive once more. We think the markets have through the process of having less conviction on the macro outlook become a bit complacent as they wait for the next catalyst. However, we might need to wait until the conclusion of the upcoming Fed & ECB meetings in May before we get some clarity on where we truly are in the economic and liquidity cycle. Meanwhile, the debt ceiling concerns are growing and wait in the wings once the central bank meetings conclude. We remain cautious heading into summer.
Have securities flows in and out of Japan reached an inflection point?
The Yen has weakened at the start of Japan’s new fiscal year while Yen rates and Yen cross currency basis have lacked momentum. The assassination attempt on Prime Minister Fumio Kishida over the weekend was shocking but did not elicit a major reaction in Japanese financial markets.
In today’s episode, MUFG Chief Japan Strategist Takahiro Sekido reviews recent price action and cross border security flows in March, as well as changes in market structure of the Tokyo market. He also shares his views on spot USDJPY, Yen rates, and Yen basis.
Spring/summer turnover outlook and the outlook for the agency mortgage basis
In today’s episode, MUFG Head of Prepayment Modeling and Strategy, Glenn Schultz, provides our estimate for turnover across the 2023 spring/summer home selling season and the implication of our turnover outlook on relative value across the coupon stack. He also discusses the near, intermediate term outlook for the agency mortgage basis against the backdrop of the SVB and Signature Bank failures, along with FDIC liquidation of the securities portfolio.
Cross-border securities flows hit record levels ahead of BOJ Leadership Change
In today’s episode, MUFG Chief Japan Strategist Takahiro Sekido review JPY assets and securities flows in March and also looks ahead to triggers for April. He also shares his views on spot USDJPY, Yen rates, and Yen basis.
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Head of Rates Sales, Americas
New York, NY
Head of U.S. Macro Strategy
New York, NY
Chief Japan Strategist
Head of Agency Mortgage Prepayment Modeling and Strategy
The podcast content above is being provided for educational and informational purposes only. The information and comments are not the views or opinions of MUFG Union Bank, its subsidiaries or affiliates. Please consult your attorney, accountant or tax or financial advisor with regard to your particular situation.