Dec 11. US rates and curve probe lower as oil plunges
–ECB’s LTRO today, with Reuters expecting a take up of about €130 billion. It just doesn’t seem like that much as compared the last QE program by the Fed, which was $80b per month. EUR is pretty much unchanged from late yesterday, but might be trying to put in a bottom as the ECB appears somewhat tight in policy (or hamstrung), while rates in the US probe lower. US news today includes Retail Sales, expected +0.4 and Jobless Claims 295k. Russia raised rates today from 9.5 to 10.5% to arrest the dive in the ruble.
–Oil continued to plunge yesterday. Hi yield debt spreads are at or very near the highs of mid-October, up about 10 bps yesterday according to my calculations. In spite of the treasury auction, the yield on the ten year dropped 5 bps to just above 217. 2/10 treasury spread made another new low of 159.5. As I have mentioned before, last year in December the curve was pressing to the highs of the year, peaking right at the end of the month. This year it’s the opposite, at the nadir with no bottom in sight. (Does that make sense? Probably not… but as Yogi Berra said, “If you don’t know where you are going you might wind up someplace else”). In euro$’s red/gold pack spread flattened to new low of 149.75, and red/green fell 2.375 bps to just 81.25. The peak one year spread is just 97 bps, Sept’15 to Sept’16. As the BOE’s Carney said yesterday, hikes will be gradual and to a “more limited extent.” The eurodollar curve agrees.
–December midcurves expire tomorrow.
