July 22. Flattening continues. Sept 30 yr bond contract at new high
–The biggest aspect of yesterday’s trade was continued flattening to new lows. Red/gold pack spread was down nearly 4 bps to 197, though it was below 195 during the day. 5/30 treasury spread fell 4.8 bps to 158 as the USU (30 yr contract made a new high). Near eurodollar one-year spreads notched new highs, with EDH15/EDH16 up 3.5 bps to 95.5. EDU15/EDU16 rose 1.5 to become the highest one-year spread on the curve at 105.5 as the prospect of tightening edged forward. The mere perception of a rate hike steepens the front and flattens the back end, but perhaps lower inflation signals are also a factor. Grains closed either at or near new lows. A friend mentioned that an auction of farm land in Princeton, Illinois started the offer at over $11k/acre but ultimately sold at $7800. If there was a farmland price bubble, then the air is coming out. Dec Corn was 5.10 in May, but is now 3.72, a fall of over 25%.
–Today’s news includes CPI expected +0.3 with Core +0.2.
–According to the Telegraph, Russian sanctions “…have frozen almost all Russian companies and banks out of the global capital markets. This matters because they owe most of Russia’s $715bn in foreign currency debt. They cannot roll over $10bn coming due each month.” Could there be unintended consequences?
–TYU 128c 33k bought on block for 5, and 128.5 call bought for 3 in size of at least 15k. Both new positions. 128 strike is about 35 bps out of the money…2.10 to 2.12 for current 10 yr vs 2.47 close yesterday.
