Sept 26. Fedspeak
–Big day for Fed speakers. Mester (remove accommodation) and Evans (not so sure) cancel each other out. Brainard is next; in her last speech she was concerned about low inflation but cited the dollar as an influence, and talked about trying to raise inflation expectations. Then Atlanta Fed’s Bostic, followed by Yellen at 12:45. Should be a little something for everyone.
–Yesterday’s action was dominated by weakness in equities, with FAANG stocks especially soft. Tensions with N Korea continue to simmer. (China says NK issue is getting too dangerous). One large trade in the VIX was the roll of Oct 15/25 c 1×2 vs 12p into the same position in December in size of 260k. Obviously, being short October 12 puts rolling toward expiration could be problematic…bought himself a little more time.
–In rates, yields fell, with tens down 4.5 bps to 221.6. The curve remains flat, with 2/10 and 5/30 pinned near recent lows of 80 and 92. In euro$’s, the red/gold pack spread made a new low at just 41.75 bps, -2.75 on the day. When Fed members suggest that balance sheet adjustment will be boring, the market is all in. Consider EDH21 contract at 97.88. Three and a half years away (what the Fed would call “longer term”) and the yield is just 2.12%. No term premium there. No inflation premium.
