Newsletter summary

With the emergence of tight factors in market liquidityParallelblockchaingameUs bond interest rates are under upward pressure. Reserves in the banking system are expected to fall by $170 billion, or 12% of GDP, on April 18.Parallelblockchaingame.5%, which will disturb liquidity in the short term. At the same time, inflation expectations and maturity premiums have risen, and interest rates on 10-year Treasuries have risen sharply by 30 basis points to 4. 5%.ParallelblockchaingameA target range of .5-4.6%. In the second quarter, an increase in the net supply of duration could further push up the maturity premium, putting 10-year Treasury rates at risk. Attention should be paid to the potential risks of higher-than-expected inflation and recession in the United States.

Text of news flash

Liquidity tensions in the market are gradually emerging, and US bond interest rates are under upward pressure.

Banking system reserves play a key role in financial market liquidity. Liquidity shortage factors mainly include quarter-end factors, TGA fluctuations and SOMA account position changes and so on. The repo market crisis in 2019 is caused by the lack of liquidity, short-term taxation and national debt settlement under the macro background.

At present, reserve levels are considered adequate and are expected to support the Fed to continue to shrink its balance sheet until 2025. However, in the short term, tax factors, upward TGA balance and reverse repurchase balance and other factors may lead to a rapid decline in bank reserves and disturb liquidity.

On April 18, the reserve balance is expected to fall by $170 billion to $3.4457 trillion, or 12.5 per cent of GDP. Although liquidity is still abundant, short-term disturbances cannot be ignored.

Inflation expectations and maturity premiums have both risen recently, confirming previous judgments about US Treasury interest rates. Interest rates on 10-year Treasuries have risen sharply by 30 basis points to reach the target range of 4.5-4.6 per cent. In the second quarter, an increase in the net supply of duration could further push up the maturity premium, putting 10-year Treasury rates at risk.

Operational recommendations include making a steep curve, recommending short 10-year US bond futures and long 2-year US bond futures.

Potential risk factors that need to be watched include higher-than-expected US inflation and a US recession.

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