An interesting August
August 16, 2019
–Yields continued to plunge with tens down 5.2 bps to 1.529%. Spike lows during the day saw tens reach 1.473% and 30’s 1.914% (ended at 1.98). The ten year inflation-indexed note yield went negative ending at -3 bps. New low in several near euro$ calendars, with EDU9/Z9 at -22.5 (-2.5) and EDZ9/H0 at -27.0 (-1.0). In year spreads, EDU9/U0 posted a new low at -69.5. EDZ9/Z0 did not make a new low close, settling at -47.5, but was -49.5 late in the day. Bullard said the Fed could wait for September’s meeting to move. FFV9 at 9824.5 indicates a slight lean to a 50 bp cut rather than 25 at the Sept FOMC. Mexico cut rates yesterday first time in 5 yrs, from 8.25 to 8.0%.
–New low in GE as Harry Markopolos of Madoff fame, accused the company of fraudulent accounting. New low in Deutsche as well.
–The mid-day panic bid in treasuries felt like a ‘get me out’ moment, and prices are lower this morning as stocks rally, with an option expiration today. Implied vol powerfully bid in rate products. Below is a euro$ straddle comparison from one year ago, Aug 15, 2018, nearly identical DTE to yesterday:
Prices from 8/15/2018 (year ago)
EDU8 97.6425 4.75
EDZ8 97.375 15.5
EDH9 97.255 24.0
EDM9 97.155 32.5
EDU9 97.095 42.0
EDZ9 97.055 49.5
EDH0 97.05 57.25
Prices from 8/15/2019 (yesterday)
EDU9 98.035 16.0
EDZ9 98.260 36.5
EDH0 98.530 47.0
EDM0 98.650 56.5
EDU0 98.730 63.5
EDZ0 98.735 70.0
EDH1 98.795 74.0
The at-the-money December straddle is more than double the premium of a year ago, 36.5 vs 15.5. Currently, the red euro$ pack is an average price of 98.7625, projecting a FF target one year forward of 1.0-1.25% at which we’ll stop. If that’s the case, long red straddles currently seem like a sale.
–Powell speaks one week from today at the KC Fed’s Jackson Hole conference. There was an article out yesterday saying that Fed officials were instructed to cease comments going forward.
–Housing starts and U Michigan Sentiment and Inflation indicators today. The Mich 5-10 yr forward inflation indicator was 2.5% last (vs treasur /tip spread at a new low of 1.56%, 100 bps lower….
https://spectator.us/media-blackout-fed-jay-powell/
Interesting notes on WeWork below:
https://ftalphaville.ft.com/2019/08/14/1565783457000/WeWork-s-S-1–some-quick-observations/
