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Dear friends, welcome to SignalPlus Daily Morning News. SignalPlus Morning News updates macro market information for you every day, and shares our observations and opinions on macro trends. Welcome to track and subscribe, and follow the latest market trends with us.

Bond market mood today...

Without deliberately exaggerating, the bond market liquidity in the developed markets disappeared completely yesterday, and the volatility of government bonds in the United States, Europe and the United Kingdom was no less than, or even exceeded, the level of the Lehman crisis.

- U.S. Treasuries bid-ask spreads were 2x normal, 2yr yields moved 70bps intraday (equivalent to 3 rate hikes), Eurodollars moved as much as 90bps intraday on Dec 23 (equivalent to 4 hikes), even the 2/10s yield curve saw 40bp intraday swings, and in fact, the CME suspended trading in the June SOFR contract around the NY open, a very rare occurrence.

- The depth of the German government bond market collapsed completely, liquidity fell to 25% of normal levels, bid-ask spreads were almost 3-4 times normal, 2-year yields fell by 48 basis points on the day, and 10-year yields fell by 29 basis points, Both set single-day records and easily surpassed the most volatile period in 2008.

The European Central Bank clearly announced to fight inflation in February, and the subsequent CPI data also unexpectedly rose. At this time last week, the market was still pricing that the European Central Bank would raise interest rates by 50 basis points, and the terminal interest rate hovered around 4%. With the SVB and Credit Suisse events (more on that later), the terminal rate has fallen back to 3% and the ECB has become the first central bank to face a monetary policy decision in this situation.

Fundamentally, inflation remains tricky, but concerns about systemic risk in the banking sector are equally important, and authorities must also balance their credibility in fighting inflation and remain calm in the face of current banking pressures to avoid sending the wrong message The trade-off, while showing the right amount of empathy to show that the central bank is ready to protect if truly necessary, is undoubtedly an easier job for Tom Cruise than the challenges the ECB faces in the next 24 hours (The following figure).

Good luck to the ECB

The latest to be hit by the banking crisis yesterday was Credit Suisse (CS), which has faced various challenges over the past decade and is now under intense pressure due to questions about its portfolio losses and liquidity, with a With some European banks and counterparties publicly stating plans to reduce counterparty exposure to CS, the bank quickly sought help from the SNB (Swiss National Bank), which committed before the end of the trading session to provide "liquidity" support if necessary, While CS shares recovered roughly half of their losses by the end of the trading session, helping push up overall shares, CS bonds and CDS remained weak, and thankfully, unlike the GFC period, contagion risk has so far remained The credit crisis is under control, the credit crisis has not spread to other European financial institutions, and, as of this writing, the bank has just announced that they will be borrowing up to CHF 50 billion from the SNB to help manage short-term liquidity.

Back to the US, in the data section, PPI fell by 0.1% in February, weaker than expected, all component items were weaker, and January data was also revised down; February retail sales data fell by 0.4%, sales data excluding automobiles The decline of 0.1%, although weaker than expected, was partly offset by sharp upward revisions in December and January, and the growth in the control group remained stable at 0.5% mom. After the release of the retail sales data, the Atlanta Fed's GDPNow model forecast jumped to 3.15% from 2.63% last week, but the New York Fed's manufacturing index fell to -24.6, significantly lower than expected and the fourth consecutive month of contraction, especially in employment. and new orders were weak. On the other hand, the NAHB housing market index hit its best level since September 2022, showing that the housing market remains strong.

Relatively lackluster economic data and hurt from European interest rates sent U.S. Treasury yields sharply lower, with short-dated ED and SOFR futures looking more like crypto altcoins than government securities for much of the day. Last week, the probability of raising interest rates by 50 basis points was as high as 60%, but yesterday the market priced the probability of raising interest rates by 25 basis points in March was only about 30%, and the terminal interest rate has completely collapsed. The interest rate curve is expected to be as early as June Starting to cut interest rates, and will ease more than 100 basis points before Christmas. Rates are being repriced with indescribable speed, while the Fed is being pushed into a dilemma where it must choose between inflation and systemic risk.

The crypto market feels like an oasis of calm compared to the bloodbath in the fixed income market, with major coins failing to break highs and implied volatility refusing to waver, trading sentiment remains fairly numb compared to past years . Traders appear less willing to spend premiums after a tough time in the market, and the macro picture remains challenging, leading options participants to trade relatively conservatively. On the positive side, Fidelity Crypto recently quietly went live, offering its 37 million retail accounts a regulated access point to cryptocurrencies; moreover, Cathie Wood launched a new open-ended cryptocurrency fund (ARK Crypto Revolutions); and Circle announced that they had effectively cleared most of the $3.8 billion in redemption requests since Monday morning.

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