Def, sorry for the late response -- been tied up lately.
The movement in TEDs seems to relate more to a recent squeeze in short-dated collateral, rather than to heightened credit concerns. In fact, longer dated credit spreads have actually caught a bid lately, with 10+ years tightening 5-10 bps or so in the past few days. But shorter-end spreads have definitely underperformed, especially as <=2 year T notes and bills have rallied furiously. Everyone out there had been been selling the short end on the Fed play, and repo had accordingly become extremely tight. Bills likely also caught a bid due to the net inflow of cash you mentioned as well as expected strong tax receipts. Either way, it seems like an aberration, and I suspect short-dated repo will eventually loosen up and that TEDs will return to the 70-80 bp range before long. (Caveat -- I usually focus on 5+ maturities, so I have fairly little expertise or experience analyzing short-dated instruments.)
From a bigger picture perspective, if tomorrow's data print benignly, I think longer spreads will rally a bit further near-term, especially as folks try to chase the trade to make up some of the money lost earlier this year. But I suspect it will also prove fleeting, since I believe it highly likely that we'll get some additional strong growth and/or negative inflation readings down the road, today's favorable NAPM reading notwithstanding. |
