Jan 3, 2018. Ten year tip breakeven above 200 bps

–Rates edged higher Friday, with some pointing to a Goldman piece repeating that the Fed will deliver more hikes than being discounted by the market.  The 2y yield rose 3.2 to 191.9 and 30y bonds were +6.9 bps to 281.0.  EDH8 was sold heavily with several clips of 50k dumped at 9822.5 and 22.0.  Settled 9821.0, with open interest dropping 26k, so it appears to have been long liquidation.

–The curve had a steeper bias.  FFF8/FFF9 spread settled 53.5, a slight new high, while the peak one-year ED spread, EDH8/EDH9 closed at 44.5.

–In euro$’s there was a decent amount of call buying.  Recently there has been heavy buying of 15-20 delta calls in June midcurves, today there was a much more aggressive buy of 20k 2EU 9787c covered 9759 with 28d and 3EU 9762c covered 9852 with 42d; 27 paid on the strip.  These were new buys.

–Tomorrow includes Mfg ISM (I mistakenly thought it was yesterday) and the Fed minutes.

–I marked ten year treasury tip spread just above 200 bps (for the first time since last spring). Chart below. For all the hand-wringing about inflation targets, it’s interesting to note that during the last hike cycle this spread averaged about 250 bps even as the Fed hiked to 5.25%.  Now at 200 bps and FF are 1.25-1.50%.  It’s not about inflation; it’s about making sure companies have the cash flow to service larger outstanding debt.  As an aside, WSJ reports that Venezuela missed another debt payment.


Posted on January 3, 2018 at 5:19 am by alexmanzara · Permalink
In: Eurodollar Options

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