This is it/BTFP gets arb'd/Surcharges begin/PAYX, NKE see slowing, CCL killing it

This will be my last writing day of the year as I take some needed time off next week (though I am scheduled for a few CNBC hits). I want to again express my gratitude to you for reading what I write. I also want to mention how grateful I am for the many close friends I've made over the years in this business. And whatever angle you come from that reads my work, whether the sellside, buyside, wealth management, media/journalism, banking, private equity, real estate, credit, broader industry/business, politics, etc..., I feel each of us in our own way are helping each other in trying to figure things out with what's going on in the world, whether we agree or not on some things. I really appreciate that collaborative nature of what we do. Cheers to a great holiday and healthy/happy 2024.

With the help of a piece from my friend Alexandra Harris who writes for Bloomberg, it's quite amazing what has become of the Bank Term Funding Program. What was meant to be a liquidity source for banks where they can pledge to the Fed their below par priced US Treasuries for 100 cents on the dollar at an interest rate of the one yr overnight index swap plus 10 bps. The program was meant to last one year from the SVB blow up until March 2024. 

So what are the banks doing now with the facility? Arbitraging it. The overnight index swap has now fallen, as the market has priced in rate cuts, to a current 4.88%. Well, the Fed is paying a 5.4% interest rate on excess reserves. Borrow at the BTFP and then take the proceeds and give it back to the Fed and receive IOER. Voila, the BTFP is now a money making arb play for banks. Question now is whether in light of this, does the Fed get rid of it in March.  

So the Red Sea surcharges have begun. Maersk said yesterday that they were tacking on a transit disruption surcharge of $200 and a peak season surcharge of $500 beginning January 1, citing "severe operational disruption" for a trip from China to Northern Europe. It will be $500 total for a shipment to North America.