Comments From Fed’s Logan Re: QT Build On Discussions In Minutes, Spreads Wider

Weekend comments from Dallas Fed President Logan (non-voter in ’24, one of the more hawkish regional Fed Presidents) has helped bias swap spreads wider to start the week.

• The move has been led by the 5- & 10-Year tenors.
• Logan addressed the future of QT over the weekend, noting that she thinks that “it’s appropriate to consider the parameters that will guide a decision to slow the runoff of our assets. In my view, we should slow the pace of runoff as ON RRP balances approach a low level. Normalizing the balance sheet more slowly can actually help get to a more efficient balance sheet in the long run by smoothing redistribution and reducing the likelihood that we’d have to stop prematurely.”
• A quick reminder that details of the Dec FOMC meeting minutes had already help bias swap spreads wider last week.
• That came after the minutes noted that “several participants remarked that the Committee’s balance sheet plans indicated that it would slow and then stop the decline in the size of the balance sheet when reserve balances are somewhat above the level judged consistent with ample reserves. These participants suggested that it would be appropriate for the Committee to begin to discuss the technical factors that would guide a decision to slow the pace of runoff well before such a decision was reached in order to provide appropriate advance notice to the public.
• Flows surrounding a brisk, albeit not record breaking, start to ’24 IG issuance will have also filtered into swap spread activity during the early rounds of ’24 swap spread dealing.

Fig. 1: U.S. 2-. 5-. 10- & 30-Year Swap Spreads (bp)