Feb 24. Crude oil surging; CLJ $108/bbl
–Solid 7-yr auction sparked a late bid in longer treasuries. The curve flattened slightly, tens closed under 2% at 1.98. Option expiration today in March treasuries.
–Crude oil continued to surge, with CLJ at $108/bbl late yesterday, up 1.73, the highest level since May 2011. I don’t know if official inflation data will register the increase in cost-of-living, but I think markets may begin to take notice. For example, I marked ten year note to tip spread at 232, the highest since last August. (Back in May/June it was 250ish). In eurodollars there was a seller of 10k each red midcurve April and May 9937p (EDM13 settled 9936) vs buyer of 10k each blue midcurve Apr and May 9837/9812p spds (EDM15 settled 9848). Paid between 0 and 1 bp for the put spreads. Steepener trade, which depends on the front part of the curve remaining stagnant, while market perceptions shift toward an inflationary outlook (and Fed tightening) for the longer end.
–The recent weakening of the yen may also be sending a signal that crushing govt debt loads have consequences. JGBs haven’t really sold off much, but appear vulnerable. Worth noting in this context that US debt to GDP is now at 100%. Also, in the (much) shorter term, there has been a tendency to buy treasuries for weekend safety recently, as the Greek situation was more fluid. That bid is probably over.
