The Institutional Risk Analyst

New York | Fed Chairman Jerome Powell confirmed this week that the FOMC is unlikely to make any further reductions in interest rates for the balance of 2019. Various market observers have offered opinions about whether the interest rate environment is good for banks and those with leverage or not. Suffice to say that the spreads between rates in dollars and different currencies – specifically euro and yen -- are more important than the notional "neutral rate” of interest in

In this issue of The Institutional Risk Analyst, we feature a comment by Robert Eisenbeis, Vice Chairman & Chief Monetary Economist at Cumberland Advisors in Sarasota.Dr. Eisenbeis was formerly Executive Vice-President and Director of Research at the Federal Reserve Bank of Atlanta. As you read his analysis, ponder the enormous importance of the decision by then FRBNY President E. Gerald Corrigan to shut down the bank's dealer surveillance function in the wake of the 1991 Sol

New York | In the most recent edition of The IRA Bank Book, we note that the rate of increase in funding costs for US banks in 2018 was a bit over 70% year-over year. The rate of change in this key component of bank earnings is not particularly correlated to the broad swings in market interest rates and, by implication, investor confidence. But the normalization of bank funding costs is relentless. As we describe in some detail in the IRA Bank Book for Q1 2019, rising bank

New York | Once again it is time for earnings in the world of financials. Go back and compare the Sell Side view of financials at the end of Q2 ’18 with the narrative today. What you see is that the group basically has gone sideways for the past year. Peak gains for sector leaders like JPMorgan Chase (JPM) and U.S. Bancorp (USB) were about 5%, but both are down more than that amount since the great slide began in earnest in December. We can blame the sudden downdraft on va

By any standard, credit spreads in the US bond and loan markets remain very tight. Now several years into a Fed interest rate tightening cycle, short-term interest rates are rising but spreads do not expand. A year ago the two year was yielding 1.35%, but today is 2.6%. The 10-year Treasury note, on the other hand, has barely moved in a year, 2.2% then vs 2.85% today. Last we looked, Treasury 2s vs 10s was 25bp compared to almost a point a year ago. What a flattening yiel