Sept 10. Higher wages, higher rates (over the short term)

–Solid payroll data and strong wage growth sparked a surge in yields.  NFP 201k and yoy wages +2.9%.  Ten year yield rose 6.4 bps to 294.1.  Shorter maturities hit their highest levels in a decade with the two year note, for example, closing +6.6 bps to 270.3.  Similarly, the one-year bill rose to just over 2.5%.
–Near euro$ calendar spreads made new highs as odds for continued hikes increased.  EDU8/EDU9 closed at a new high of 64.25.  Of course, EDU8 expires in one week, so this spread is now more dependent on the level of EDU9 which closed at exactly 97.00 or 3%.  The September FOMC is fully priced, so a spread of 64.25 is roughly forecasting 2.5 more hikes over the next year.  EDZ8/EDZ9 also posted a new recent high of 39.5.  However, further deferred spreads remain inverted, with EDZ19/EDZ20 at -0.5.  Red/gold euro$ pack spread also closed -0.5, down 1.375 on the day.
–Despite the strong data, volume wasn’t particularly high and implied volatility remains pegged to the lower end of an already depressed range.  For example, week to week changes: 0EZ 9700^ 26.5 to 24.0.  0EH 9700^ 38.5 to 36.5.  Similar losses in greens and blues.  While price action is bearish, other factors aren’t offering corroborating evidence.  However, auctions this week of 3′, 10’s and 30’s should cap the upside, at least in the early part of the week.
–Stocks are firmer this morning, following europe, not China, where the Shanghai Composite continues to press new lows.
–Bostic (who previously said he won’t vote for anything that knowingly inverts the curve) is set to speak this morning.  Consumer Credit at the end of the day.
Posted on September 10, 2018 at 5:09 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply