Markets React as Tensions Rise Between White House and Federal Reserve Over Interest Rate Pressure 
U.S. Urges Japan on Monetary Policy as Yen Volatility Raises Market Concerns 
Japan Declines Comment on BOJ’s Absence From Global Support Statement for Fed Chair Powell. Source: Asturio Cantabrio, CC BY-SA 4.0, via Wikimedia Commons 
BTC Flat at $89,300 Despite $1.02B ETF Exodus — Buy the Dip Toward $107K? 
Bank of Canada Holds Interest Rate at 2.25% Amid Trade and Global Uncertainty 
New York Fed President John Williams Signals Rate Hold as Economy Seen Strong in 2026 
BOJ Rate Decision in Focus as Yen Weakness and Inflation Shape Market Outlook 
Jerome Powell Attends Supreme Court Hearing on Trump Effort to Fire Fed Governor, Calling It Historic 
China Holds Loan Prime Rates Steady in January as Market Expectations Align 
FxWirePro- Major Crypto levels and bias summary 
RBA Raises Interest Rates by 25 Basis Points as Inflation Pressures Persist 
In the recent past, markets have been so cautious on the potential impact of Fed balance sheet normalization on interest rate volatility markets.
At a high level, though in principle the return of significant mortgage risk to the private market could drive a bid for gamma, in practice we find that options hedgers are unlikely to take down much of this supply. This suggests the direct impact on vols should be limited.
While markets have priced in a rather aggressive normalization, as net T-bill issuance again turns negative into April, and with no debt ceiling resolution expected prior the fall “drop-dead” date, we expect repo to remain rich to Fed funds.
Receive in $100k/bp of a 3Mx3M GC swap versus paying in $100k/bp of a 3Mx3M OIS swap at @ a spread of -1bp (both swaps start on 6/30/17 and mature on 9/29/17).
Stay long1-year expiry A+10 2s/5s curve caps versus A-20 curve floors.
Stay long $1bn notional of 1-year single-look A+10 2s/5s CMS curve caps (observation date 3/19/18, strike 0.41%) versus $1bn notional of 1-year singlelook A-20 2s/5s CMS curve floors (observation date 3/19/18, strike 0.11%) at a premium of 4.25c. P/L since inception: -1.2bp.
