A rapid decline in Treasury yields catches many by surprise, but not us.

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	Forwarded this email? Subscribe here for more The full post is available to paid members — enjoy a free preview of today’s content! Rates collapse as unemployment rises to 4.3% and economy falters A rapid decline in Treasury yields catches many by surprise, but not us. Nik Bhatia Aug 2 ∙ Preview   READ IN APP   Dear Readers, Blink and you miss it—rates reprice quickly. Just a couple months ago, markets were focused on the balance of risks, implying that the risk of inflation and the risk of recession were pulling about even. Well, those days are over, and the balance of risks transformed into recession risk with two major economic releases. Today’s letter includes 18 charts from around the global macro world, including a check on repo rates and SOFR metrics, some Fed balance sheet study, the coming flood of Treasury bills, today’s disastrous unemployment report, and yesterday’s horrific ISM manufacturing, price study on rates, and finally, a price study on bitcoin and its evolving relationship with the stock market. Did you do what I said and get your mortgage refi docs ready? Judging by the Fed’s MBS holdings, somebody certainly did. Unchained empowers you to fully control your Bitcoin with a collaborative multisig vault, where you hold two of three keys and benefit from a dedicated Bitcoin security partner. Purchase bitcoin directly into your cold storage vault and eliminate exchange risks with Unchained's Trading Desk. Unchained also offers the best IRA product in the industry, allowing you to easily roll over old 401(k)s or IRAs into Bitcoin while keeping control of your keys. Don’t pay more taxes than you need to. Use code TBL for $100 off when you create an account. Today’s charts SOFR rates SOFR volumes Fed reserves as % of GDP Fed’s MBS holdings Fed’s MBS holdings monthly change Reverse repo usage for both domestic and foreign counterparties Treasury bills as a % of total Treasury securities Unemployment rate Jobless claims ISM Manufacturing employment 2s 2s (weekly candlesticks) 10s Delinquencies Treasury yield curve (2s10s) S&P 500 Bitcoin / S&P 500 correlation Bitcoin Repo update I almost, for a split second, forgot it was month-end when I checked yesterday’s SOFR rate. Of course, month-end calendar dates drive repo rates, as banks rush to shore up any inventory with the appropriate funding. Sometimes, this rush creates a dislocation in the market. For example, let’s imagine that Wells Fargo had chunky Treasury inventory heading into July 31st. It tries to borrow funds at 5.4% but they are scarce, especially at month end, when counterparties might prefer to show T-bills to their clients instead of repo exposure to Wells. Wells then must raise its repo rate offered to 5.5% in order to attract the necessary financing. This is why SOFR spikes for month end, but then it should come back down, right? It didn’t really retreat fully in July. Now August will bring another test, and we’ll genuinely be able to measure if reserves are becoming scarce. If they are, you can expect the end of QT and a resumption of QE, although the Fed will change the name this time. “Balance sheet maintenance,” or something of the sort, we imagine. SOFR’s increase, even if just the calendar effect, is something very closely monitored. We sense a shift in the size of the balance sheet. Remember that higher rates are potentially simply a function of the quantity demanded by the market—as SOFR volumes rise (more inventory needing financing), it makes sense that the rate would tick up as more are fighting over the same funds. SOFR volume hit yet another record yesterday. ❌ DON’T WRITE YOUR SEED ON PAPER 📝 It’s estimated that ~30% of Bitcoin is lost forever. Poor seed phrase security is a big reason why. This is why we use Stamp Seed, a DIY kit that enables you to hammer your seed words into a durable plate of titanium using professional stamping tools. Heat-resistant to 3,000ºF, rust-proof, crush-proof, and time-proof Compact and easy to hide No loose parts, such as screws or letter tiles Take 15% off with code TBL. Get your Stamp Seed today! Fed’s balance sheet is in focus... Subscribe to The Bitcoin Layer to unlock the rest. Become a paying subscriber of The Bitcoin Layer to get access to this post and other subscriber-only content. Upgrade to paid A subscription gets you: TBL Pros receive exclusive research and chartpacks TBL Pros have access to live monthly Q&A Zoom discussions TBL Pros can post comments and personally request analysis   Like Comment Restack   © 2024 Nik Bhatia 548 Market Street PMB 72296, San Francisco, CA 94104 Unsubscribe