May 22. I need more cowbell
–Ten year yield dropped 6.3 bps to 218.5 yesterday. Heavy new call buying with another 12k added to open interest in TYU 129c, now up to 70k (biggest strike). New buyer of 6k TYU 128.5/130.5 call spread and 20k TY5K (next Friday) 127.5/128.5 cs for 8. In dollars there was a new buyer of 80k 2EZ 9900c for 2.5 (8 delta, EDZ7 settled 9801.5).
–The curve flattened with red/gold euro$ pack spread falling 3.375 to 140.5. 2/10 treasury spread closed 161.3, down 5.5 on the day.
–Today’s news includes CPI expected +0.1, and Yellen at 1:00 pm EST on the economic outlook. Yesterday both Fischer and Draghi said they needed more cowbell… Fischer, “Eurozone needs growth to survive long term” and Draghi, “…growth is too low everywhere.”
–In terms of a reflation trade, crude oil was up 167 late to 60.69. However, many other commodities remain weak. For example, July Soybeans made a new low settle for this year yesterday. In terms of the agricultural economy, the Kansas City Fed mfg index was horrendous at -13. From BBG: “New orders this month are deeply negative, at minus 19, as are backlog orders at minus 21. These readings, reflecting contraction for export orders and trouble in the energy sector, point to significant trouble for the region’s manufacturing activity in the months ahead.” In looking through data on the KC Fed website, many statistics are right at the lows of the crisis. In Q1, the annual change of farmland prices (irrigated), showed an outright decline. Farm incomes are in a steady decline. “As farm incomes fell, cropland values moderated and more producers depended on financing to cover operating expenses.” Fortunately, the rest of the country relies more on the financial industry than more mundane things like food and energy. Right?
