Crazy aunt comes out

July 10, 2019

“Debt is like a crazy aunt we keep down in the basement. All the neighbors know she’s there, but nobody wants to talk about her.” 

The above quote from former presidential candidate Ross Perot (who walked on yesterday) doesn’t really have the same punch in the written word that it does in video clips, because he seems a little off-kilter himself in some interviews.

–However, the topic of the vast universe of negative-yielding debt, and the amount of debt continuing to be amassed, is gaining traction.  This morning’s Drudge Report headline blares: DEBT PILES UP!  DEFICIT 25% HIGHER SINCE ELECTION.  The story concerns the debt-ceiling limit, and notes that the ‘drop dead’ date has moved forward according to some analysts, because of the concern that corporate tax receipts are softening.  Interesting timing, as the treasury auctions tens and thirties today and tomorrow…

–Today of course, Powell begins his semi-annual testimony to Congress.  NOTE: Prepared remarks are released at 8:30, an hour and a half prior to his appearance at 10:00.  The semi-annual report released Friday will guide the testimony, with concerns about soft capex spending and risks due to global trade.

–However, market action has already signaled direction.  Yesterday, yields rose, with tens tacking on 3 bps to 2.061%.  Highs in almost all rate contracts were posted the day after the June 19 FOMC.  It’s interesting to note that many contracts this week have taken out the lows made on the morning of June 19.  In other words, the last FOMC meeting (the minutes of which are due this afternoon) culminated in a ‘blow-off’ top.  For example, EDU9 low on 6/19 morning was 9786.5, the high on the 20th was 20 bps higher at 9807, and yesterday’s low was 9785.5.  In red Sept, EDU0, the low on the 19th was 9829.5, the high on the 20th was 9856.5 and yesterday’s low was 9826.0.  Round trips.  Red, green and blue Sept are all at or through the 9825 strike this morning, having been 25 to 30 bps above that strike on June 20, and Friday is the expiration of July midcurves.  Also worth noting is that the US ten year yield, having gotten below 2% for a couple of days, now seems to be rejecting the 1% handle.   FFF0, Jan Fed Funds, which indicate the end-of-year target, traded as high as 9844.5 on the 20th or 1.555%, a discount of over 80 bps (or 3 eases) from the current Fed Effective.  Yesterday’s close was 9822.5.

–July/Aug FF spread settled exactly -25 bps.  An ease of 1/4% is baked in the cake for the end of the month, now it’s about positioning, with overly-enthusiastic longs paring back.  I would also mention that blues were weakest part of the euro$ strip. closing -3.0.    

Quote from a piece that Mauldin highlighted yesterday by Mark Grant: 

Pew Charitable Trusts states that the median pension fund assumption, for the State Pension Funds in the United States, is 7.50%. Well, with the Bloomberg Treasury Index yielding 2.00% and the Bloomberg American Corporate Index yielding 3.20% and the Bloomberg American High Yield Index yielding 5.84% you begin to realize that bonds, for the pension funds, have become nonstarters. They are losing investments from the “get-go,” to achieve their median pension fund assumption.

Mark J. Grant, Chief Global Strategist, Fixed Income; B. Riley FBR Inc.

Posted on July 10, 2019 at 5:26 am by alexmanzara · Permalink
In: Eurodollar Options

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