April 29. A steeper curve as the Fed whiffs?
–Though it was a light volume day, there were a couple of significant notes about yesterday’s session. The curve steepened. While 2/10 and 5/30 didn’t make new highs, they are at the tops of their respective ranges. The ten year note rose 5 bps to 197.4, in spite of a strong five year auction. New highs were made on the dollar curve. For example, red/gold pack spread was up 3.875 to 122.5, the highest since mid March. As the dollar has eased, some market measures of inflation have perked up…as mentioned yesterday the ten yr note to tip spread is above 190, new highs for the year. EUR above 110 as of this writing.
–The glimmer of inflationary impulses is likely to be downplayed today, as Q1 GDP is expected at only 1.0%. Additionally, the FOMC announcement this afternoon almost certainly will acknowledge the weakness of recent data. While the Fed probably could use this meeting to cue the market towards a rate hike, the opportunity will likely slip past. It will probably be an opportunity to pick up some cheap(er) vol. Yesterday there was a seller of Green June 9837 straddles at 24. Granted EDM6 has had a fairly controlled range in April, but in March the range was 50 bps. In any event, further steepening from reds back appears to be in the cards, and could catch many offsides.
