Daily Market Color

Rates Rise Following Weak Treasury Auction

Rates reverse course ahead of 2023’s final session. Swap rates and Treasury yields rose 3-6bps across the curve, largely the result of weak demand at today’s $40B 7y Treasury auction. The dollar rose as well, though the significant rate decline over the past few months has pushed the dollar to its weakest levels since summer and its worst year since 2020. Elsewhere, equities were little changed on the day, potentially a quiet end to a strong rebound from 2022.

Bloomberg Dollar Spot Index Graph

Half of Red Sea container fleet forced to sail longer routes. Attacks by Houthi rebels have forced 350 Red Sea container ships to re-route around the tip of Africa, according to a report from Flexport Inc. Shipping companies report that in a worst-case scenario, route-diversions around Africa could effectively remove 25% of global shipping capacity. As a result, ocean shipping costs between Europe and Asia for January 2024 have climbed to ~$3,000 per container, double the historical average. Observers are concerned that the developments could spill-over to consumer prices, with CEO of Flexport, Ryan Peterson saying, “It’s about an 8% longer journey, which is going to drive prices up quite a bit for ocean freight – that’s a material impact on prices for the goods themselves.” 

Suez Canal Transit Calls Graph

Yen climb continues after Ueda issues hawkish commentary. BOJ Governor Ueda signaled yesterday that a rate hike might come sooner than later, as he stated that there is no need to wait for full wage data before hiking. Futures currently suggest a 57% chance of a hike by the end of April’s rate decision, while a full rate hike is priced in by the end of July’s policy meeting. The Yen climbed following Ueda’s comments, now at ~141 per dollar after reaching its weakest level of ~152 per dollar just a month ago.

USDJPY Spot Exchange Rate Graph

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