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Commodity Supercycle
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Posted 2/21/2021 20:15 (#8849798 - in reply to #8849512)
Subject: RE: Commodity Supercycle

Here's a note from by buddy Marty,

"It stems from USTs 10Y selloff, for more reasons. Primary one being SLR relief ending March 31st 2021. Banks are accommodating room on their balance sheets, since there is around $1 trillion coming their way (the fiscal stimulus, at the moment being warehoused by the FED). MMFs (Money Market Funds) are limited by the RRP (Reverse Repo) cap ($30 billion per fund), hence they can not handle the inflow. Rise of rates on the long end has triggered a wave of hedging activity by leveraged mortgage banks. Since as interest rates rise, the duration of their assets increases. Hence they hedge by shorting (selling) the 10Ys, adding more fuel to the fire. On the other hand, the front end is getting crushed (1m-2y), for the reasons of Treasury rebalancing its issuance, redeeming bills and selling more long-dated bonds.

It is unbelievable, one to wonder, are these people evil, or just plain ignorant. This is also pressuring the repo rate, and if that gets negative, MMFs might just turn away, did someone ask for credit contraction?

All that volatility is being transferred to the FX, with USD taking the heat. Low USD is the only thing holding things together. Hence the rise of GBP, I expect to be one more selling wave of USD, DXY to go even lower, and bottom likely first week of March. Where will GBP be at that time, idk. I expect EUR above 1.24. But when USD wakes up, he will leave no prisoners."

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