Daily Market Color

Yields Continue Higher with Trade Talks


Don’t Forget About Canada

Today Canadian Foreign Minister Chrystia Freeland arrived in Washington, DC to join the negotiation table with US and Mexican trade officials.  The Trump administration has signaled it will give until Friday for a successful integration of Canada into the US and Mexico’s agreed upon trade plans.  If unable to do so, both the US and Mexico have committed to moving ahead with a bilateral agreement excluding Canada.  “Hopefully they’ll come on board but if not, we’ll move on with Mexico,” Treasury Secretary Steven Mnuchin stated earlier today.  Items of debate include access to Canadian dairy markets, intellectual property rules, and trade dispute settlements.  Tariffs on automobiles also remain a point of contention, in which Trump has threatened to impose on Canada if a deal cannot be reached.  US Commerce Secretary Wilbur Ross weighed in on the unfolding negotiations this morning, stating “overall the key thing is the Canadian economy really can’t survive very well without a deal with the U.S. They are too dependent on us and particularly too dependent on the automotive sector.”     



US Treasurys extended yesterday’s selloff as risk assets continued to gain favor amid the ongoing trade talks.  Yields/swap rates climbed an additional 2-4bps across the curve in a bear steepening pattern, with the 10-year note yield settling near 2.88%.  Major US stock indices inched higher and added to yesterday’s record breaking levels as the Nasdaq climbed 0.15%, DJIA gained 0.06% and S&P 500 rose 0.03%.  Crude oil futures similarly held within a tight range, with WTI settling 0.5% lower to $68.56/barrel ahead of tomorrow’s weekly stockpile report.  In FX markets, the US dollar (widely considered a safe haven currency) declined to its lowest level in nearly a month against major currencies, highlighted by a 0.26% decline against the Canadian dollar.   



No-Action Relief for Certain Loan-Related Swaps       

Today the CFTC issued limited no-action relief excluding certain loan-related swaps from counting toward the swap dealer registration de minimis threshold.  In the letter, the CFTC granted relief, under certain conditions, for swaps entered into more than 180 days following the execution of a loan that would normally be counted towards a bank’s de minimus threshold.  Without today’s relief, the increase in interest rate hedging demand could put some banks at risk of having to register as a Swap Dealer if they exceed the $8 billion De Minimis Threshold currently in effect, notwithstanding the IDI Exclusion.  In response to today’s relief, the CFTC and its Commissioner Brian Quintenez stated, “today’s relief was necessary so that Main Street bank could continue to serve the needs of its small and medium-sized commercial clients” in an environment that “has been experiencing a spike in demand for interest rate swaps from existing loan clients who want to hedge risk.”


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