July 29. FOMC tomorrow
Just a few notes from yesterday’s trade. In interest rate futures, the near one year spreads notched new highs. For example, EDH15/EDH16 was up 2.5 to 96.0. In tens, there was a buyer of about 10k TYU 125.5/TYV 125^ spread for 44 (settled 46), appears new on both sides. The two year swap spread made a new high of just under 21 bps, having started the month at 13. This is above last year’s high in August associated with the taper tantrum. HYG, the high yield ETF closed on its daily low and looks ready to test the low of a couple of weeks ago (5.31 yield according to bigcharts). ZeroHedge has another post about hi yield and corporate debt in general, showing a significant amount of outstanding paper that will need to be rolled in the next 5 years. Finally, the Shanghai Composite has had a strong rally, perhaps spurred by the PBoC’s Pledged Supplementary Lending of 1T CNY.
–5 year auction today. FOMC announcement tomorrow.
–Having made a couple of market comments, now I am going to rant just a little bit. I know Chicago is the wearing the crown of the new murder capital, but I live in a pretty nice suburb just north of the city without much crime. And I was walking the dogs yesterday evening, and went by a park near my house. The dogs are pictured in the attachment. Not a great shot, but you get the idea. Anyway, I am walking past Maple Park, and posted there is a new shiny sign, a handgun with the red circle and slash through it. My first thought is: Who is the idiot that thinks this is a good idea? Or necessary? What are you hoping to accomplish? I am not a big handgun advocate, but in my community, or anywhere else for that matter, these signs are simply meaningless. It’s like the comedian who says “Here’s a public service announcement: You don’t have to put an Obama sticker on a Prius. We get it.” Same thing here. Anyone that’s bringing a gun into the tot lot isn’t going to be dissuaded by a sign. It makes me think of the vast new regulatory apparatus that’s been assembled recently. For example, in my industry, we have to complete video courses on a fairly regular basis for compliance purposes. No additional comments on that topic…
–Anyway, you might wonder what the dogs have to do with this. Well, the big dog is named Axel. His idea of protecting the property is marking his territory, and for good measure, charging the fence and barking menacingly. We’ll call him Richard Fisher. The fluffy white one, is relatively quiet except for the occasional yap. Her name is Xena, and though it’s an somewhat of an insult, I’ll just call her Janet Yellen. (An insult to the dog, just so we’re on the same page). Now, the yap can be compared to macro-prudential policy. Regulation. Video courses. Anti-handgun signs. As you might guess, I side a bit more with Richard Fisher. Remind the market that funding costs aren’t always going to be zero. By hiking. Show your teeth. Snarl once or twice and let them know you’re there, and that you can get to the gate in fraction of a second.
