Stealth steepening

Feb 28, 2019

–Given what has been a low vol environment, price action was quite bearish in treasuries Wednesday, with a steeper curve.  5/30 closed at a new high of 58 bps, closing on the high of early 2018 which was 61.4.  A paper from Credit Suisse a couple of weeks ago suggested a steeper curve would  be necessary to clear treasury auctions.  Tens closed 2.691%, up 5.4 bps.  USM had the lowest settle since Feb 4.   On the euro$ curve red/blue and red/gold pack spreads made new monthly highs, with red/gold +2.875 to 15 bps.   

–A Merkel suggestion that Brexit could be delayed sent short sterling tumbling, with reds -6.0 and greens -8.5. (By comparison ED green pack was -4.75).  

–Powell said the Fed was close to a new plan on the balance sheet; Goldman says an announcement to end to balance sheet reduction will come at the March FOMC.  Powell originally seemed concerned that excessive financial speculation was creating potential instability.  About a year ago there was talk of “financial stability” as a third Fed mandate.  Not hearing much of that anymore…  There was a Fed paper out yesterday that suggested wage growth might be understated.  Um…so what?  That only means  that consumer spending has been even weaker than initially thought?  Q4 GDP out today gives a clue as to whether the wealth effect or wages are a more important economic signal.  Atlanta Fed estimates 1.8% for Q4.  The market looks for 2.2 or a bit higher.   China mfg PMI was disappointing at 49.2 vs 49.5 expected. 

–Trump/Kim ended the summit without a deal.  ESH down modestly and fixed income bouncing a bit.

Posted on February 28, 2019 at 5:21 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply