Long treasury yield continue to sink

May 28, 2019

–Yields backed up a little on Friday following Thursday’s moves to new lows.  The ten year ended the week at 2.32%, up 2.6 from Thursday.  However, this morning TY and US futures are making new highs as are ultra-tens and bonds.  Wait a second, did the Chinese threaten to BUY US debt?  EDH21, the peak of the eurodollar strip, is also at a new high this morning, printing 9813 (+4.5).  The tilt of EU parliamentary elections toward euro-skeptic parties may be a factor. 

–Corn is also at new highs today, as wet weather patterns continue. July Corn up 10 cents to 4.14 1/4

–Today brings auctions of 2 and 5 year notes.   
–2/10 on Friday slipped to a new recent low of 15.4 bps.  Curve likely remains pressured with auctions.

–Attached is a variation of a chart I posted this past weekend.  This one is just PMI Manufacturing vs Core yoy PCE.  Clearly there’s a relationship between the two, and makes Friday’s PCE data look like it could drift further away from the Fed’s target.–Nominal levels of blue midcurve straddles are quite a bit lower than reds.  As an example, 0EU 9800 straddle settled 34.5 ref 9804.5 on Friday, while 3EU 9800^ settled 29.5 vs 9794.5.  Because the market perceives the Fed to be “in play” the reds are juiced.  However, it’s worth noting that the Fed doesn’t hedge mortgage securities, while private buyers do.  At the May 1 FOMC meeting, there was no addendum on Balance Sheet principles.  It’s worth noting that the Fed, (as outlined in the March 20 FOMC summary), intends to let MBS roll off and be reinvested in treasuries up to $20 billion per month starting in October 2019.  October of 2018, when the Fed ratcheted up the roll-off to $50 billion a month, is when things went pear-shaped for stocks.  I’m not sure of market implications going forward, but just think that the deferred part of the eurodollar curve may become more volatile as the year progresses.

Posted on May 28, 2019 at 5:13 am by alexmanzara · Permalink
In: Eurodollar Options

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