ICAP Insight

Test Interest Rate Swaps Post

Test Interest Rate Swaps Post

Test Interest Rate Swaps Post

Test Interest Rate Swaps Post

Test Interest Rate Swaps Post

Test Interest Rate Swaps Post

Monday Morning Outlook: Rock Stars and Ross

Rauh Rocks the Market

From the Editor:

For all you Ross fans out there, last Wednesday your favorite Fed Fund blogger received a visit from John Bon Jovi, who was visiting ICAP for our annual Charity Day. We asked John if he wouldn't mind having his picture taken for the ICAP blog and he agreed. That is Joanne Yanogacio, iFeds adminstrator to JBJ's right. Blinding smiles all around!

Ross will chime in shortly (Ross, we've missed your posts!) with a post about this week's impending rate change. Wednesday, when the change is expected, will no doubt be a big trading day. It is also ICAP's Annual Charity Day. You can read more about Charity Day here.

Monday Morning Outlook: Strong Mornings Continue

Predictable Patterns In Store

The word for today is SNOOZER? Is that even a word? If not let's switch it to BORING. I hate it when I sit-down to evaluate a week and everything seems so predictable. I am probably now setting myself up for a wild week but here is what I'm seeing.

Strong Mornings Continue

We are still in the same pattern of strong mornings. Demand for funds by banks in Europe is still extremely high. This also puts pressure on the European bank's domestic branches for funds. Once again the market softens slightly around noon E.S.T when Europe goes home. Since the morning was so firm the Fed normally injects a generous supply of reserves into the system which makes the market trade lower at night. This has been going on for three months now. We are beyond a pattern. Come on Fed...let's shake some things up!

Sorry, let me get off my high horse and get back to this week. Again, I like the mornings firm and the market trading off at night at least until Wednesday (Settlement Day). I think these three days will all be at or very close to target (4.50%).

Firm Day Friday.

The one firm day I could possibly see is Friday. Traditionally, the families get together on Thanksgiving and talk about whatever everyone wants for Christmas. The next day my wife fires up all her credit cards and goes out shopping from morning till night. This spending drives the demand for funds up. With the exception of last year (one basis point below target) the Friday after Thanksgiving usually trades a little on the firm side. I think Friday will come in at 4.52%.

I hope all of you have a great Thanksgiving. I'm sure it will be much better than mine. We are hosting dinner at my house with 18 of my in-laws. Uggghhhhhhh.

Hey, have any of you read the latest edition of the Weekly Toyo Keizai? Unfortunately it is written completely in Japanese but there is an article on me along with an amazing photo of me in action. Translated they refer to me as "the greatest broker...no broker better knows every inch of the market structure than he does." Wow! Pretty good for such a modest person like me.

Editor's Note: We'll follow up with the entire translation and photos of Ross' moment in the Japanese sun.

Monday Morning Outlook: Rates Remain Firm

Hello Gang, Ross will be back tomorrow and I'm sure he's chomping at the bit to get back to work... or not. I did pretty well in calling the market last week so as the law of averages go, feel free to use me as a counter-indicator this week.

Today should stay firm as is quite often the case after a long weekend, I'll guess a 4.56% effective.

Wednesday Neutral
Tomorrow should have a neutral tone, so I'm going with a 4.50% effective. If I'm right it will be the first time since October 12th that the effective rate hit the target - that's interesting in itself.

Fed Injects Liquidity Thursday
Thursday is Corporate Tax Day, a huge add is needed - projection of $43 Billion. As we discussed last week, the Fed normally does 3 rounds of Rp's, Overnight, 7 and 14 day on Thursdays. That should help but I'm still looking for a 4.55% effective. Friday should provide some relief - probably around a 4.45% effective - so have a good week and and enjoy another 4-day work week next week. Happy Turkey!

Sal Giamalvo

Monday Morning Outlook: Magic Kingdom of Funds

Hello Gang, Ross is out this week and next Tuesday as his kids are taking him to Disney World again while the rest of us are left here to fight the good fight in our own Magic Kingdom of Funds.

Rates Remain Soft at Close, Firm Slightly by Settlement Day
Here we go, with 3 days left in the Settlement Period, we had a crash and burn Friday night and traded down to 0.5% to a 4.28% effective. I still believe there are too many reserves in the system, a product of having to front load to try to keep a lid on rates at the beginning of the period, so I would be selling early and assuming soft closes. I'll guess a 4.42% effective today and Tuesday then a little closer to the target on Wednesday, which is Settlement Day.

Thursday starts a new period with a projection of a $39 Billion add need. The Fed has been responding with 3 rounds of RP's, overnight, 7 and 14 days, so I'm guessing a 4.50% effective. Monday is a holiday, so Friday we will be dealing for 4 days and there is a tendency for those who can get a head start to sell earlier than usual and enjoy the long weekend, so I'm guessing the body of the day will be soft but I'm leaving room for a comeback at the close, around a 4.48% effective.

Have a good week and we'll do it again next Tuesday morning.

Sal Giamalvo

Monday Morning Outlook: Tight, Tight and Tight

Unpredictable Activity Continues

Wow! This market continues to astound me. It appears that whatever one thinks you have to throw it out the window. If you remember I was looking for effectives in the low 70's on Thursday and Friday and we wound up getting a 4.86 and 4.80%

To quote one of my favorite scholars, Ed Norton, "we have met the enemy and we are theirs."

Editor's note: Ross's scholar may be a particular television character from the 60's.

Once the market goes into a pattern you are better off just going with it until you are wrong. So here goes:

FOMC Wednesday Announcement Highly Anticipated

Wednesday is obviously the key day of the week being both month-end and the FOMC announcement day. Normally the market would have started to show signs of the upcoming new target. While I still firmly believe the new target will be 4 1/2% I wonder when we will actually see the market trade there?

The demand for funds in Europe still continues to be extremely high and the Fed has not exactly been over accommodative. What does that all add up to? TIGHT, TIGHT and TIGHT. I like both Monday and Tuesday to be worth at least 4.75% if not a little higher. Yes, I still like the target to change to 4 1/2% at 2:15pm on Wednesday but it is month-end. I like the morning to start off around 13/16-7/8. Even with a little post announcement dip I still think the effective will be more like 4.70-75 for the day.

So Thursday will actually be our first day at the new target but I still like it TIGHT. Normally the first of the month is a very firm day. That combined with the strong European demand should result in an effective of 4.62-64. Friday things should start to cool off but I still think we are looking at 4.53 after a very soft close.

In summary I like this market firmer than what I would normally would. Can you imagine if the Fed does not ease? Grab your helmets, flak jackets and head for the hills!

Monday Morning Outlook: Ross's FOMC Prediction

Monday to Start Firm

I guess I'm in a chipper mood this morning. The weather is great and we should have a fun week. Friday was an extremely firm day and I like Monday of this week to continue in the same pattern. My guess is we see a similar 4.77 effective for the day.

Tuesday to Soften

On Tuesday buyers get a reprieve. I like Tuesday to come in similar to last year or a basis point below target. Wednesday is Settlement Day which I like slightly firm. How about a 4.76?

Potential FOMC Quarter Point Ease Oct 31

Now here is where the fun begins. A particular economist whom I am very friendly with is not looking for any change in rates when the FOMC makes their announcement on October 31st. All I can say to Lou is stay away from the racetrack this week. You will lose your shirt.

Editor's Note: Lou Crandall of Wrightson Money Market Observer

Okay, so now you all know I look for a quarter point ease next week. So how does that effect us this week? Well this Thursday begins a new settlement period. Since the rate cut will be in mid-period I think the market will be looking for a quick price adjustment. Right before last meeting the Fed appeared to fight this practice. While I don't think we will be trading at 4 1/2% by the end of the week I do like a slight adjustment. I'm calling for an effective Thursday and Friday more in the 4.70-4.72 range.

Have a great week and gets lots of sleep this weekend. The 31st is month-end and FOMC day and lets not forget Halloween. Could cause some havoc in the market.

GO ROCKIES! I really don't like the Rockies but I just HATE the Red Sox.

Monday Morning Outlook

It looks like we will have lots of action early in the week while later in the week is up in the air. Monday, as expected, will be a crazy day. It is both Corporate Tax Day and mid-month Treasury Settlement Day. This normally gives us an effective around 5 basis points above target. It appears the market will be much higher in the morning and trade off later in the day. On the whole I still like the effective to be approximately 4.80% to 4.81% for the day.

Now for the rest of the week. As in previous years I like the effective from Tuesday through Friday to be at or slightly below target. Again, while this sounds kind of boring I think it will be anything but. The pattern once again is the market is firm in the morning with the enormous European bank demand followed by the market trading lower later in the day. Every day last week the market traded at 4.50% or lower with Settlement Day trading down to 1/2% to 1%. I look for pretty much the same this week. I like effectives to be 4.73% to 4.75% Tuesday to Friday but see numerous opportunities for you to sell high and buy low.

That is still our goal, right?

Have a great week.

Monday Morning Outlook: Market Trades Firm With Wide Trading Range

There's nothing better than having a three day weekend in October especially when temperatures are hovering close to ninety degrees here in New York/Jersey.

Trading Range Remains Volatile At Market Open and Close
We have seen huge distortions in the trading range lately. Last week everyday traded at 5% or higher and everyday traded at 4.5% or lower. We even had three days last week where the market traded at 2% or lower. So while I may say the day will trade at Target or a few basis points plus or minus, please bear in mind that depending on your market timing you could be a hero or a goat to your management. We continue to see our largest distortions early in the morning with European Bank demand for dollars and, of course, late in the day as the market closes.

Week Begins Firm, New Period To Trade Near Target
The first day back after a long weekend is always very firm especially since Wednesday is Settlement Day. In general, I like Tuesday's effective to come in at 4.79% or 4.80%. Since our Period-to-Date effective is 4.74% I expect Wednesday to be closer to 4.76% for the day. Thursday begins a new period and I believe we will come in at Target. Last year Friday's effective came in 4 basis points below Target. Don't think we will be quite that bad this year but I will go with a 4.73% for Friday.

Have a great week everyone and thank you for not mentioning the Yankees around me!

Monday Morning Outlook: Quiet Week Ahead

Can you say TARGET?

Well Friday was Quarter-End and the market did not trade like I thought it would. The effective came in 17 basis points below target after the Fed tried its best to keep the system liquid with several rounds of repo on Thursday and Friday. In general, the first of October should trade fairly similar to the last day of September. While I would normally be talking Monday up I believe with another generous round of repo that we would now look for Monday to trade down late in the day.

Quiet Week Ahead

Unfortunately, the balance of the week is quiet. That is, there is really nothing that should make the Fed Funds effective rate deviate much from target. While this may seem dull to you please bear in mind that I still see a strong demand for liquidity in Europe. Again, this demand usually results in the morning trading strong and the market trades off as Europe goes home (noon EST.). So to wrap up I like the mornings to remain firm this week with the market dropping to the target rate by the end of the day. If anything this week is different I could see Friday trading a few basis points south of target as we go into the long Columbus Day weekend. Thank you Christopher for giving us a Monday off.

As you can see the commentary is a little short this week. There are two main reasons for this:

1) The market is what it is, not much going on.

2) I spent all of my energy this weekend celebrating the Yankees making the playoffs and most of all celebrating the Mets getting knocked out of the playoffs. Yes, Life Is Good!


So have a great week and Lets Go Yankees!!!!!!!!!!!!!