Mark Cabana on the Fed, QT and Treasury Funding
Odd Lots
Bloomberg
4.5 • 2K Ratings
🗓️ 31 January 2024
⏱️ 45 minutes
🧾️ Download transcript
Summary
It's a busy week for the bond market with a meeting of the Federal Reserve and the release of the US Treasury's quarterly refunding statement. While a lot of people have been focusing on when the Fed will cut benchmark interest rates, there's also an ongoing debate about how fast the central bank will shrink its balance sheet given last year's banking crisis and the recent drama in the repo market. In this episode, we speak with Mark Cabana, longtime rates strategist at Bank of America, about the big questions lurking behind the week's events. We talk about who will buy all the bonds the US is selling, what will happen to bank balance sheets as rates go down, and the impact of liquidity on the broader market.
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| 0:46.5 | Joe, it's a busy week. |
| 0:48.0 | It is a busy week. |
| 0:50.0 | It's sort of snuck up on me. |
| 0:51.0 | You know, I knew it was Fed Week, like it's sort of snuck up on me you know I knew it was Fed week like it's also |
| 0:54.1 | it's also and I'm not even sure like the degree to which it matters |
| 0:58.8 | quarterly refunding week sort of controversial there is a lot on. I got tipped off to the fact it |
| 1:04.4 | was quarterly refunding week when everyone started talking about deficits on |
| 1:07.8 | Monday. Oh yeah. We got the estimates of borrowing needs. |
| 1:10.3 | Everyone that's the day suddenly everyone becomes really worried about the credit worthiness of the future United States of America. |
| 1:17.5 | There's this theory that's going around. It's kind of controversial. I see it on Twitter sometimes that like this is like really important for markets that like some mix of bills and bonds and how much really matters. I don't really know. I'm like sort of like skeptical but maybe there's something to that but you know a lot of moving parts right now and of course it is Fedweek I don't think anyone expects a rate cut but I think the expectation is some sort of like maybe declaration of victory and which can then be used to set up the beginning of the cutting cycle. |
| 1:51.0 | Well, it's interesting you mentioned this theory about it having a potential impact on markets because of |
| 1:55.4 | course the other thing that we expect the Fed to discuss this week is quantitative tightening. |
| 2:02.0 | So the shrinking of the balance sheet. |
| 2:04.0 | And I find this is the thing that gets people really riled up, |
| 2:07.6 | the idea that stocks are up because of Central Bank liquidity |
| 2:11.6 | and once QT begins,'s all going to wash away and stocks are going to fall. |
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