Feb 27. The Powell Show

–Once again, ED curve flattened quite a bit.  EDM8 settled 9774 (-2 on the day), EDM9 9733.0 (unch’d), EDM0 9716.5 (+1.5), and EDM2 9709.5 (+2.0).  EDM8 9800c settled 1.0 and 0EM 9800c settled 1.0 as well.  That spread was offered flat during the day; that is, one can buy the front June calls flat. (trade has been done in size but the front leg was buying 9800/9825c 1×2).   FFF9 came back down to settle 9788, -0.5 on the day and just 5 bps away from certainty of 3 hikes over the year.  Red/gold euro$ pack spread settled -2 on the day at 27.375; beginning to approach new lows.

–Big event today is, of course, Powell’s testimony.  Text will be released at 8:30 and his appearance is at 10:00.  The market has three hikes priced, exactly what the dots reflect.  I think Powell will do his best to chart a neutral course, and he will express confidence that inflation will reach target.  I wouldn’t be surprised if he downplays stock market volatility (he’s sure to be asked about it), which may be construed as slightly bearish.  I would guess he will sidestep most questions about the Federal budget deficit, aside from expressing general concern.  Probably won’t be anything that would be bullish for rate futures, although if he leans too hawkishly, we may see more flattening.  Chance that press conferences are announced for every meeting to improve communication?

–Warren Buffet has been in the news recently, with a few articles about Berkshire’s massive t-bill hoard which is over $100 billion.  One article mentioned that dealers go to Berkshire for specific maturities due to huge inventory.  Apparently, part of the reason for severe pressure on the front end of the curve is related to large issuance of bills.  And it sounds as if Buffet is itching to do a big swan song deal; he was mentioning buying parts of GE if he could do so at ‘the right price’.  Well, GE’s total market cap is now $125 billion, just about the size of Berkshire’s bill holdings.  I am not suggesting a purchase of GE, just thinking how much more pressure will be applied to the short end if Buffet does do a big deal and peels off a few bills to pay for it.

Posted on February 27, 2018 at 5:05 am by alexmanzara · Permalink
In: Eurodollar Options

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