August 1, 2023
SLOOS: Yesterday’s Senior Loan Officer Opinion Survey pointed to tightening lending standards and low demand. The degree of tightening over the last two quarters has been fairly significant with the March regional banking crisis accelerating a decline in credit creation. Historically, the survey has preceded credit moves by 2-3 quarters and recent tightening suggests the economy should slow into year end. Note the survey doesn’t account for the recent shift away from traditional lending channels, meaning the predictive power of the SLOOS report could be diluted.
Catalyst ahead: Ten-year Treasury yields are higher this morning at 4.05% with a test of the October peak near 4.20% likely. Stronger than expected US economic data has been responsible for the summer backup in yields, and a near-term break above ~4.20% requires more of the same with this Friday’s Jobs Report on deck. October continues to look like the cycle peak in all yield tenors and a disappointing payroll number this Friday could provide confirmation. The Fed’s dual mandate is price stability and maximum sustainable employment, which makes the official BLS report one of the most consequential from a policy perspective. Consensus is looking for July non-farm payroll gains of 200,000. Something below 175,000 would be an opportunity to add bond duration.