South Korea FICC manager with structured products(IR, Credit, FX, and Commodities) & Prop trading(cross-asset view)
대한민국 영등포구
Joined February 2023
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제 글은 모두 개인적인 겸험, 생각 및 논리에 입각하여 작성되었음을 밝힙니다. 저는 이러한 글을 통해 그 어떠한 영리적 목적도 취하지 않으며 이는 순수하게 투자권유 행위와는 무관함을 다시 한 번 밝힙니다.
저의 글은 일반 개인투자자에게는 매우 부적합하며, 거래하는 모든 종류의 기초자산과 상품속성 또한 개인에게 부적합합니다.
teapaw.org/AlexanderKim120/status…
The midterm elections ended in a blue sweep, and Vance has openly targeted DJT. According to subsequent reports, Vance could hold the most powerful negotiating leverage at this juncture. Bessent is also continuously adding to the OFAC sanctions list, pressuring Iran into a voluntary withdrawal. The critical point here, as highlighted by a series of recent reports, is likely the issue of "disposing of Iran's HEU stockpile." I believe trading this for the seven clauses proposed by Iran is the most urgent topic of negotiation right now.
Conversely, this situation is compounded by various strikes, CENTCOM's attempts to conceal them, and frequent rumors of renewed strikes in the Middle East.
My perspective was very simple, consisting of two main points: (1) given the economic asymmetry, any negotiation that takes place must significantly favor the U.S., and (2) a comprehensive nuclear agreement will be difficult to achieve in the short term. I don't actually think that fundamental dynamic has changed much.
What makes it complex, however, is the question of "how will this ultimately conclude?" assuming Vance manages to bring Iran to the table in some capacity and a trade-off occurs between the HEU inventory disposal and the seven clauses.
If Vance fails to get a perfect answer on that front, I believe even he (despite insisting that negotiations must happen right now) might inevitably be forced to accept military strikes. This is because if Iran begins to regain some financial leeway (though the U.S. will naturally try to steer this toward a phased relief), the blueprint for the ultimate "nuclear agreement" at the very end could become tangled once again, potentially leading to mutual distrust.
The extent to which Iran is willing to concede right now seems to me to be the most important factor.
I am reviewing this cycle because I believe it will be an important moment going forward.
First, I continuously lengthened my duration from early September to early October. As I increased it, the expected margin gradually expanded from 15-20 bps to 30-50 bps. As time passed, I felt that the expected margin of those positions was gradually growing, even if the absolute level remained similar. Many market participants discounted the number of rate hikes and inflation too heavily over too short a period.
Because I thought this was a positioning issue disconnected from actual economic fundamentals, I became confident that the margin relative to the actual level was larger. If rates had spiked further at that moment, I probably would have made the decision to cut my losses. The worst-case level I envisioned was the 2Y reaching 5% and the 10Y hitting 6%. However, if the pace of approaching those levels had been very gradual, I would have continued to add to my position.
Some might say, "You should buy at those levels," but the recording of numbers that the system cannot handle suggests that the impact won't stop at first-order effects; much stronger second-order effects could emerge. This is highly dangerous. It is on a completely different level than when entities systemically mandated to hold bonds temporarily suspend judgment on deploying funds for additional purchases due to short-term rate spikes. Once a certain threshold is crossed, they are forced to go against a normally functioning system and actually reduce their bond positions. That point is always a highly perilous zone. A similar incident occurred recently in France. Since the U.S. is a place where much broader liquidity is concentrated, it is structurally difficult for rate spikes to occur with the same sensitivity as in France.
The reason I remained confident in buying was heavily driven by these systemic factors.
Let’s shift the perspective a bit. I’ve been semi-forcibly exposed to all sorts of noise coming from the stock market over the past month. We sometimes see cross-asset factors resetting at very rapid cycles. In this September-October cycle, the correlation between AI tech stocks and interest rates was, quite simply, very strong. I don't know much about individual stocks, but I do understand the strategies the industry executes. Many people mention hedge fund liquidations, and I strongly agree. However, I am somewhat cautious about that interpretation because, even if they distort the index using massive leverage, it hasn't yet been confirmed whether there has been a broad shift in the positions of unleveraged investors—what I often call the "big hands" (large institutional money).
In this regard, what I am paying attention to is the "room for policy changes." Truly big players rarely move technically like momentum players or long-short funds. Their positions tend to shift over horizons ranging from a minimum of six months to several years. While we simply look at the "stock index," a significant portion of their actual investments goes directly into the AI ecosystem. This encompasses the sheer scale of the OTC market, ranging from over-the-counter products like ABS/ABL to direct loans or purchasing the bonds of hyperscalers.
Therefore, as I watch the market debating where the bottom of the index is or at what level it will rebound, I have one main question: "Will these large institutions reduce the funds they've injected into the AI ecosystem? If they maintain it, will they reduce the increment (delta) of their capital injections? Will they just maintain it? Or will they invest even more aggressively?"
This will be triggered by the midterm elections that ended with a Blue Wave this week, but we need to monitor it with a longer time horizon. If I were the CIO of one of those large institutions, I would give this order: "Hey, recheck all the risks of our current investments. Run a more sensitive scenario analysis on our IRR assumptions. If necessary, casually ask the brokers who intermediated our funds about the movements of other players."
It's not about a day or two of crashes and rebounds. I am not confident that we will have all the information regarding the decision-making of the people actually holding these funds until at least right before the new Congress is formed on January 3rd next year. That is why I, too, will not fix the expected value of my current position just yet. From now on, however, I think it is rational to focus much more sensitively on the delta of AI investments, which is the core factor of global growth.
Alex retweeted
President Trump's diesel fuel deal with Russia has faltered as multiple tankers have turned away from the US - FT
One loaded tanker sailing from St. Petersburg changed its destination to Brazil, while two others are indicating they are open for orders.
In fact, nothing highly unusual was found in the QRA. The coupon increases, which had drawn everyone's attention, naturally did not take place, and as expected, the phrasing in the guidance was changed from "for at least the next several quarters" to "for the next several quarters." In other words, the phrase "at least" was removed, which was anticipated this time around.
Two additional phrases were added:"As part of that process, Treasury will engage with a variety of market participants to better understand evolving Treasury supply and demand dynamics," and "In considering any changes, Treasury will be guided by the objective of financing the government at the lowest cost over time."
What particularly catches the eye is "variety of market participants." Looking back, this expression was previously used during the TIPS increase in November 2020 and the coupon cuts in November 2021.
Considering that it was used in 2021 when the 7Y and 20Y were reduced relatively more heavily, we can see that the phrase "variety of market participants" actually hints at decisions regarding distribution across issuance tenors and shifts in that distribution. The market was already somewhat aware of these changes in tenor distribution.
Aside from that, the mention of a "considerable debate" regarding the FY27 increases in the TBAC Reports stands out. I still believe this noise will likely be sorted out in the upcoming QRA next January and ultimately put into action around the second quarter.
Alex retweeted
🚀 BREAKING: Kazakhstan has officially halted operations on the Atyrau–Samara pipeline following a precise Ukrainian strike on russia’s critical oil hub in Samara.
Key facts on the hit target:
• Europe’s largest tank farm
• 71 massive storage tanks
• 1.6M m³ total capacity.
This is a masterclass in choking key export routes without ever targeting a port. ⛽️💥
Alex retweeted
An announcement that is as personal as professional:
18 months ago, we started collecting online prices in real time to track how Liberation Day tariffs were feeding into inflation.
A lot has happened since. The BLS commissioner was fired. The longest government shutdown in US history meant CPI wasn’t published for the first time. And the case for an independent measure of inflation became much stronger.
What started as a tariff inflation tracker has since grown into something much bigger:
The Bloomberg Price Project (BPP), our attempt to build the US CPI from the ground up using alternative data.
Today, BPP covers 87% of the CPI basket, across both goods and services (more new data will be added in coming weeks). Every month, we collect millions of prices from card transactions, e-commerce sites, grocery stores, pharmacies, rental listings, corporate data, Bloomberg Terminal market prices and government records. And more data are coming.
The payoff is detail. Official CPI data let you drill down to categories such as “uncooked beef steaks.” BPP goes much deeper — breaking the CPI basket into almost 700 line items, compared with roughly 200 in the official data.
Brought to you by: myself, Troy Durie, Daniel Ripperger-Suhler, Joshua Danial and Scott Johnson from across Bloomberg Economics.
Explore the Bloomberg Price Project at BECO MODELS BPP <GO>, or download the data at ECAN US BPI <GO>.
I believe the paywall on Bloomberg.com is coming down briefly so you can read this without a subscription (but you should subscribe!)
bloomberg.com/graphics/2026-…
3Q EoQ TGA target $850B
4Q EoQ TGA target $1000B
The focus of the QRA will naturally boil down to how much marketable borrowing will increase, how the ratio of coupons to bills will change in future issuance, whether there will be a reduction in the auction size for the long end, and finally, how the scale of buybacks will be described.
First, the Sources and Uses Table, which will be released first, presents a sort of identity equation. It is a simple formula: Financing Need + Change in Cash Balance = Marketable Borrowing + All Other Sources. In the previous QRA, combining Marketable Borrowing ($739B) and All Other Sources (-$75B) yielded $664B, and subtracting the Financing Need ($633B) resulted in a Change in Cash Balance of +$31B. This was an estimate that revised the Financing Need up by $76B and Marketable Borrowing up by $68B compared to the May QRA projections.
According to the actual DTS, the Financing Need as of the end of September was confirmed at $597B, and the EoQ (End-of-Quarter) TGA was $984B. Consequently, the Change in Cash Balance became +$65B. Applying the Marketable Borrowing that can be estimated from the DTS (reflecting TIPS inflation compensation on top of issuance minus redemption), it is estimated at around $744B. Accordingly, based on the identity equation, Other Sources are expected to be -$82B.
Looking back at Q3, the actual financing need was roughly $36B less than the Treasury's estimate. A notable feature was that September corporate tax prepayments surged by more than 45% year-over-year. On the other hand, since marketable borrowing increased almost exactly in line with the trajectory expected by the Treasury in the previous QRA, the TGA account naturally accumulated a balance that was about $34B higher than expected. In addition to this, the rate hike on September 16 and the increase in bills issuance seem to have widened the negative margin of Other Sources as the bills discounts portion grew.
If the Treasury is mindful of its overestimation in Q3, it might not raise the Q4 financing need significantly; this appears to be one of the reasons why quite a few institutions projecting the QRA view the Q4 Financing Need as lower than the August estimate of $646B. However, the flow of the October DTS points in the opposite direction. Since the pace of revenue growth in October was somewhat weak, I believe there is room for the Financing Need to actually increase slightly.
The Treasury already projected the Q4 Financing Need at $646B in the previous QRA, and I personally speculate that it will come out at around $650B to $670B.
However, the actual marketable borrowing figure will vary significantly depending on the EoQ TGA assumption for the end of Q4. The Financing Need itself is a cash-basis deficit and is therefore independent of the TGA assumption, while the TGA assumption drives marketable borrowing via the Change in Cash Balance in the identity equation. The Treasury typically presents the EoQ TGA assumption in increments of $50B. Since the actual TGA at the end of Q3 ($984B) was higher than the assumption ($950B), maintaining the end-of-Q4 assumption at $850B would result in a Change in Cash Balance of about -$134B instead of -$100B. In this case, even if the financing need is raised, marketable borrowing might actually appear lower. Conversely, if an EoQ TGA of $900B is adopted, marketable borrowing is expected to be roughly $650B to $670B, exceeding the Treasury's previous estimate of $628B (if $850B is maintained, it would be at the $600B to $620B level). While a potential rate hike in December is also being discussed, this would primarily widen the negative margin of Other Sources via bills discounts rather than affecting the financing need, and I believe its magnitude would not be large—around $4B to $5B per quarter per 25bps.
Q1 of next year actually requires many assumptions. As this is exclusively the Treasury's domain, it is difficult to forecast recklessly. The revenue flow in October was somewhat weak, but this requires further confirmation. Additionally, if there are expectations for increased spending in the short-term fiscal path, there is room for the Q1 Financing Need to rise. On top of this, the potential for marketable borrowing to increase will shift depending on where the end-of-Q1 EoQ TGA is set between $950B and $1T. This is almost like a gamble, so unless the Treasury intends to jolt the market, it is unlikely they will strongly emphasize this in the upcoming announcement. Furthermore, it is difficult to predict with certainty what trajectory the OFP (Office of Fiscal Projections) will assume.
However, there is one thing that needs to be considered here: the debt limit. While the OBBB raised the limit to $41.1 trillion, the DTS confirmed that the headroom was $1.125 trillion as of the end of September. Looking at recent data from October 29, it has sharply decreased to approximately $713 billion. Of the roughly $412 billion reduction over the course of a month, $134.6 billion appears to be driven by an increase in trust funds (intra-governmental holdings), with $113.4 billion of that concentrated at the beginning of the fiscal year between October 1 and 13. The remainder mostly consists of the October cash deficit (about $197 billion) and the TGA increase (about $56 billion). As a result, this limit could be reached within Q1 of next year, as early as mid-February, and this timing is highly likely to emerge as a major headline.
Next, what the market will likely pay close attention to is when the issuance size of coupons will be increased, but I still maintain a cautious stance on this front. I hold onto my existing view that it will increase starting as early as the May refunding (Q2) next year, and it seems difficult to change auction sizes before the debt limit issue is resolved. Nevertheless, given the current trends, an increase in coupons appears inevitable. When they do proceed with the increase, I believe they will opt for a strategy of expanding primarily in the 2-5Y sector, while slightly reducing the auction size for the long end during each QRA announcement under the pretext of "structural changes in market demand." Consequently, the issuance proportion of the 2-5Y sector will inevitably grow. However, since we have stepped back slightly from the period when interest rates were highly volatile at their peaks, I do not expect the government's intention to significantly pull back on the long end to become immediately apparent. Instead, we might see them formalize or slightly increase the scale of long-end buybacks, which are already being executed at up to $6B per operation.
My perspective is quite clear: even if we filter out the noise of the midterm elections, if an agreement between the US and Iran is to be reached in the future, it must definitely be more advantageous to the US than to Iran.
The extent of what this advantage entails can be quite broad depending on the situation, but fundamentally, I believe it requires Iran's full allowance of inspections at its nuclear facilities and the acceptance of the US's basic stance on nuclear enrichment.
While Trump might demand complete nuclear dismantlement, I believe that is objectively impossible to achieve. To go down that path, continuous, inevitable strikes and economic sanctions would have to be sustained for several years to come.
My basic premise is that some form of "agreement" will be reached in the first half of next year. Rather than the tight tug-of-war we see between the two sides today, it will take the form of one side loosely letting go of the rope. I personally view that moment as the time when interest rates could experience their strongest rally. However, depending on the scale of complexity and uncertainty that follows, I believe this temporary détente could turn back into heightened tensions at any time.
I think the resolution of Iran's financial issues asymmetrically implies that the most ideal stage of an "agreement" could be further delayed. The financial issues here encompass not only the frozen assets mentioned in the current seven articles but also Iran's ability to resume oil exports. Considering the combination of the cabinet reshuffle following the midterm elections and the possibility of a new election in Israel by January 3rd of next year, the likelihood of a loose agreement seems slightly further away than it does at this very moment.
I am highly confident about this. What I am focusing on is the fact that Warsh has not yet dropped any major hints regarding the balance sheet TF, which is expected to produce a draft early next year. Therefore, barring any external variables, the resumption of the RMP will be heavily discussed between the end of this year and early next year.