Two recent characteristics of the Note market show a disturbing down tick in market confidence. First, after months of currency and international policy adjustments, foreign demand for US Notes has waned. The most telling action of late has been weakness in the “T-Plex” in the 1 a.m. to 4 a.m CT window. July produced a 3 point rally but demand during the “foreign window” failed to materialize in significant fashion.
Second, and far more concerning, is the rise of the “Post-Settlement Hilsenrath Post”. Although the content remains bland, the timing of these missives is disturbing. A quick refresher, the CMEGroup settles the interest rate contracts at 2pm CT. The markets continue to trade for 2 hours in a slight time warp for positions. Day traders don’t care but positions, especially swap books, can play a 24 hour “borrowing” game when significant price adjustments occur after settlement has been determined. More directly, “The Fed’s Mouthpiece” seems to have figured out that his regurgitation of previously discussed concepts moves markets – and thus his cred – more dynamically at this time.
Taken together, these two actions do not paint a pretty picture of “the deepest, widest,safest and most resilient” market in the world. Foreigners seem less inclined to need it or want it and the Fed is resorting to journalistic “water carrying” to create a bid.