The takeaway: Turning the Ukraine-Russia war into a play on infrastructure.
Among my general thesis about government is that it plays a role in making a market. In the 1700s and 1800s, the United States was in essence a realtor, selling land to settlers who promised to develop the vast territory of the United States. Land ownership was the platform for developing the economy, attracting investment, and generating tariffs and taxes.
The American government invests domestically in research and development, providing guarantees for the financing of products that, at least on paper, contribute over the longer run to growth in the U.S. economy. For example, the Department of Energy sponsors a Technology Commercialization Fund with the mission of commercializing technologies produced by its National Lab. The Federal Communications Commission through the Universal Service Administrative Company oversees the Universal Service Fund, a fund that provides financial support to programs that build out telecommunications and broadband infrastructure.
On the international front there is the U.S. Export-Import Bank, an independent agency that provides financing support for export businesses unable to get funding from private sector lenders.
The US government makes markets or at least tries to. If we put the politics to the side for a minute, we should see that is what the Trump administration is trying to do in Ukraine.
Critics of the Administration’s treatment of President Zelenskyy are distracting us from asking the right “follow the money” questions. With an agreement on a reconstruction investment fund jointly owned and managed by the U.S. and Ukraine apparently in limbo, we should be asking ourselves whether a private sector syndicate put together by, say, JPMorgan or BlackRock, will step in to provide infrastructure financing.
Also, we should ask ourselves whether the U.S. or Europe will be the eventual guarantor of security post peace agreement, an issue that President Zelenskyy ineloquently tried to present.
It would not surprise me if France and the United Kingdom want to take a last shot at flexing their western European muscle by being the security guarantor for a peace agreement. I personally do not like that idea given such a guarantee would provide a banana peel that the U.S. could step on and slip right into a hot war instigated by a European blunder.
The upside stemming from Europe’s current economic malaise is that they are in no position to guarantee Ukrainian security which means Mr. Zelenskyy may have to go back to Trump and Company with hat in hand.
Alton Drew
2 March 2025
News scan:
Money markets. Tokenization. “XDC recently announced the launch of the first funds on its platform in token form in collaboration with Archax, the FCA-regulated digital asset exchange, broker and custodian, which is the first meaningful milestone in the partnership. These fund tokens represent four of the world’s largest money MMFs from providers including abrdn, BlackRock, Fidelity International and State Street, and will be followed by others from the 100+ available through Archax from a variety of asset managers.” — Benzinga.
Money markets. Secured Overnight Financing Rate. Euro Short-term Rate. “The Euro Short-Term Rate (€STR) and Secured Overnight Financing Rate (SOFR) not only provide the interest rate used to borrow money in their respective regions, but the spread between the two can reveal trends or preferences emerging in the foreign exchange market.” — Seeking Alpha.
Government. DOGE. Cynthia Lummis. “The only way to cut jobs is with the machete approach.” Yahoo!Finance.
Money markets. Goldman Sachs. Hedge funds. “Amid this past week’s stock selloff, hedge funds jumped in to short the market. Goldman Sachs’ Prime Brokerage desk said hedge funds net sold macro products (indexes and ETFs combined) ‘at the fastest pace in over a year, driven by short sales and to a lesser extent long sales (2 to 1).’” — Seeking Alpha.
Ukraine. Russia. Prime Minister Sir Keir Starmer has said the UK and France will work with Ukraine “on a plan to stop the fighting” with Russia – and will then “discuss that plan with the United States”. — BBC.
Inflation. Scott Bessent. Today on CBS News: Face the Nation, U.S. Secretary of the Treasury, cites the root cause of inflation as an imbalance between overregulation of the supply chain and demand stimulated by spending by the Biden Administration. CBS News.
The data
U.S. Treasury rates
According to Treasury data, the two-year is at 3.99% while the ten-year rate stands at 4.24%. The 30-year rate is 4.51%.
Board of Governors of the Federal Reserve System administered rates and foreign exchange rates
The federal funds target range is 4.25% to 4.50%. The interest on reserve balances is 4.40%. The Overnight Reverse Repurchase Agreement Facility rate is at 4.25%.
According to data released on 24 February 2025 by the Board of Governors, the EUR/USD is priced at 1.0455 while the USD/JPY is priced at 149.4900.
Statement from the Board of Governors of the Federal Reserve System regarding data methodology: “The H.10 weekly release contains daily rates of exchange of major currencies against the U.S. dollar. The data are noon buying rates in New York for cable transfers payable in the listed currencies. The rates have been certified by the Federal Reserve Bank of New York for customs purposes as required by section 522 of the amended Tariff Act of 1930.”
Federal Reserve Bank of New York reference rates
According to data from the Federal Reserve Bank of New York, the Effective Federal Funds Rate for domestic unsecured borrowings between commercial depository institutions is at 4.33%. The Overnight Bank Funding Rate, a measure of wholesale, unsecured overnight bank funding costs, is also at 4.33%.
The Secured Overnight Financing Rate, which measures the cost of borrowing cash overnight secured by Treasury securities, stands at 4.36%, while the Broad General Collateral Rate, a measure of rates on overnight Treasury general collateral repurchase agreement transactions, came in at 4.34%.
The Tri-Party General Collateral Rate, a measure of rates on overnight, specific counterparty, tri-party general collateral repurchase agreement transactions, is also at 4.34%.
DISCLAIMER: I am not a financial adviser. These blog posts are for educational purposes only. Trading of any kind involves risk. Your trading decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary.
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