Oct 13. FLATTER
–Yields edged lower yesterday in the context of a flattening curve, on light volume. The ten year fell 2.4 bps to 232.1. 5/30 treasury spread closed 91.5, essentially at the year’s low (had closed 91.4 on Sept 26). Similarly, the red/gold euro$ pack spread (2nd to 5th year) fell 1.75 bps to 42.375, just above the Sept 26 close of 41.75. The flattening is encouraging option sellers. For example, new sales yesterday in TYF (Jan) 125 straddle down to 1’48 in size of 5k (settled 1’50 ref 125-02).
–Somewhat surprising to see rates push lower as the tip b/e made a new recent high of 189.1. It’s also worth a mention that WTI is up 80 cents this morning to 51.40 and is poised to close at the high for the week.
–Bannon put Trump’s odds for finishing his term at 30%. Late yesterday Trump cut insurer subsidies related to Obamacare, certain to cause a furor. Trump also met with John Taylor in his search for a new Fed chairman. Want to see an inverted curve? Implement the Taylor Rule at the Fed. One other Trump item is that he’s scheduled to announce his Iran decision at 12:45. 30% might be high…
–BBG reports that the ECB may cut QE purchases in half next year. With the Fed’s QT program, combined Fed and ECB balance sheets will cease growing next year.
–In dollars, midcurve October options expire today. News includes CPI expected +0.6 with Core +0.2. Retail Sales expected +1.7%. Michigan one-yr inflation survey was 2.7% last, also released today.
