April 4. Safe bonds in high demand

–Near eurodollar calendar spreads were crushed as the market shaved back the odds of forward rate hikes.  While July Fed Funds settled unchanged at 9896 (indicating around 55% odds of a June move), the Sept’7/Dec’7 eurodollar spread closed at just 10 bps, down 2 on the day.  Reds to greens (2nd to 3rd year) closed at 30.875, down 1.625 on the day and a new recent low.  The peak one-year euro$ calendar spread is June’17/June’18, which plunged 4.5 to a new low of 44.5 (high in December had been 61.5).  Most spreads are as low as they have been since December.  Weakness across the commodity sector, though precious metals remain perky, threatening highs of late Feb.

–The ten year also fell to a new recent low, -4.7 bps to 2.346.  There was some talk that the new Japanese year was associated with large treasury buying, (Japan is the largest foreign holder of UST). A client also mentioned that Europe would have negative issuance this month.  I would also note that swap spreads are making new highs; maybe there just aren’t enough high-quality bonds out there…

However, news from the auto industry also continues to cast a shadow on the US economy at large.

• ABOUT:
  Former member of the CME specializing in interest rate options and yield curve strategies.

  The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results.