Global Markets Podcasts

In this month’s episode, MUFG Head of Prepayment Modeling and Strategy, Glenn Schultz, discusses August's prepayment data and answers the question of whether the Spring/Summer selling season prepayment data indicate a structural shift in the agency MBS market back to the “old normal”. He also addresses the question “Who is going to buy Agency MBS?” and how issuance will influence the agency MBS basis going forward.

George Goncalves, MUFG Head of U.S. Macro Strategy, reviews the recent Fitch downgrade of the U.S. credit to AA+ and compares it to the first downgrade by S&P roughly 12 years ago. He believes this time the backdrop is different given that the debt loads are even larger now and the Fed has rates much higher versus back then when rates were anchored by the near zero rate policy of that time period. Market reactions thus far are also different versus the first downgrade too. The other issue is that the Fitch downgrade occurred during a week when the Treasury was announcing the need to issue more debt and increase the auction sizes of Treasury securities. George has been highlighting that the sequence from the Fed to the BoJ tweaking YCC and then more UST debt, all of which have largely come to fruition as per George’s views, should result in rates in the middle of the yield curve (known as the belly and/or intermediate rates) would do most of the adjustment higher. So far that is what we have seen with 10s now well above the 4% level. Lastly, George looks forward and discusses why NFP, which is always important, but unless it breaks the string of weaker NFP reports of late, than the Fed is likely to skip in September.  

In this month’s episode, MUFG Head of Prepayment Modeling and Strategy, Glenn Schultz, discusses July's prepayment data and gives the lowdown on the Spring/Summer selling season's turnover. He also reviews relative value across the specified pool stories highlighting those he believes offer MBS investors superior relative carry. Finally, Glenn reviews our basis forecast and makes the argument for our year-end target of 120 to 130 basis points for the 30-year agency current coupon.

George Goncalves, MUFG Head of U.S. Macro Strategy, expects the Fed to deliver one more hike of 25bps at the upcoming July FOMC meeting. The FOMC statement should not see major tweaks at this time of the year, largely given that it’s a July meeting that sits between Jackson Hole and the September FOMC meeting updates (and also because the June FOMC meeting saw the Fed upgrade its forecasts on growth, inflation and rates).  In order for the Fed to keep all options open and avoid hinting that this may be their last hike they need to keep forward guidance in place by keeping this phrase largely unchanged “In determining the extent to which additional policy firming may be appropriate.”  As George has mentioned before, until chair Powell strikes out the inflation concerns from the opening remarks in the presser, they are focused more on fighting inflation versus being overly concerned about the trajectory for growth. The presser is what ultimately determines how markets read chair Powell’s tone if this July hike was a dovish, neutral, or hawkish hike. We are leaning on the neutral to hawkish side.

George Goncalves, MUFG Head of U.S. Macro Strategy, reflects on the price action and economic developments of the 1st half and provides us with thoughts on some of the risks that may lie ahead in the 2nd half. George believes that the markets caught a big break on the back of overly defensive posturing resulting in investors having to chase performance and close out short-positions and underweight level to benchmarks during the start of the year. Granted economic conditions in the U.S. were more favorable than initially feared, the overall global backdrop, especially on manufacturing side continues to weaken. Meanwhile we have central banks that have returned to hiking and the Fed has signaled that they are not done either after having skipped at the June FOMC. In our view, after a somewhat muted reaction to Fed tightening we believe the long and variable lags may actually hit harder now as we go through the 2nd half. George remains skeptical the regional bank crisis is fully resolved and that coupled with off-shore dollar liquidity draining could serve as a catalyst for risk-off. 

In this month’s podcast, MUFG Head of Prepayment Modeling and Strategy, Glenn Schultz, reviews the implications of how turnover has exceeded market expectations and the implications for valuation across the coupon stack. Notably, we make the case a continued tightening of the current coupon basis and our year-end forecast of 120 basis points against the back drop of prepayment, FDIC bank liquidation, and origination volumes.

George Goncalves, MUFG Head of U.S. Macro Strategy, returns to highlight the scenarios he is expecting at the upcoming June FOMC meeting and the potential market implications. George thinks the aim will be to deliver a hawkish skip, will the markets hear that or something entirely different is what we will be trying to assess. Post Fed we think markets should turn their attention from inflation fears and central bank action towards the growth outlook. We believe quarter-end/month-end has the potential for some early fireworks before we get into the start of summer.

In today's episode, MUFG Chief Japan Strategist Takahiro Sekido discusses Japanese life insurance company fiscal year 2022 earnings, International Transactions in Securities data and the upcoming BoJ policy meeting. He also shares his views on spot Dollar/Yen, Yen rates, and Yen basis.

With the debt ceiling resolution behind us, George Goncalves, MUFG Head of U.S. Macro Strategy, returns to recap what feels like a market that is in a holding pattern until the passage of the CPI print and the FOMC meeting. He also discusses the medium-term risks with a keen focus on liquidity dynamics. The Treasury will be replenishing its General Account (TGA), which sits on the Fed's liability side of the balance-sheet via raising cash from T-bill issuance. At a minimum, this will likely result in a crowding out effect and at a maximum level, drain market liquidity. Given some areas of the banking system remain fragile and in need of funding, it’s critical to watch how this plays out over the summer. With QT ongoing and the Fed aiming to keep rates higher for longer, this liquidity story can supercharge the Fed’s tightening efforts ahead.

In today's episode, MUFG Chief Japan Strategist Takahiro Sekido reviews asset price developments during May and looks ahead to June based upon BoJ monetary policy and fiscal and monetary fund flows. He also shares his views on spot Dollar/Yen, Yen rate, and Yen basis.