Veteran’s Day
November 11, 2022
–Yields imploded as CPI printed softer than expected 7.7 vs 7.9 expected and Core 6.3 vs 6.5. Tens were auctioned Wednesday at 4.14% and were 3.827% at futures settle, with TYZ up 2-06 at 112-165. Red euro$ pack up over 40 bps with EDM4 the star, up 42. New lows in one-year calendars with EDM3/EDM4 -109 (9488.5/9597.5) down 18 bps on the day. On the SOFR strip M3/M4 settled -103 (9520.5/9623.5). As mentioned yesterday, the lowest one-yr in 2007 was -158.
–The perceived end of hikes moved slightly forward on the curve with March’23 now the lowest contracts, both ED and SFR. On the FF curve, May’23 is now the lowest at 9512.5 or 4.875%. FFF3, which prices the Dec 14 FOMC settled 9565.5 or 4.345%. Current EFFR is 383, another 50 at the Dec meeting means 433, and that’s essentially where we are. DXY has taken out the mid-Sept low, printing 107.85 late yesterday and it’s lower this morning.
–As of yesterday’s close, the ten year yield was nearly 250 bps below the Core Inflation print. One thing that Powell emphasized at Jackson Hole is that the Fed has to stay at it until the job is done, rather than repeat previous start/stop mistakes. FFF3/FFG3 settled 33.5 (9565.5/9532.0) so the market still perceives a hike at the Feb 1 FOMC, though leaning towards 25 rather than 50. After that, the wheels come off, but it’s no sure bet that the Fed will shift towards ease.
–Large seller of approx 30k SFRU3 9550 straddle yesterday 84.5 to 83.0. Settled 83.25 vs 9541.5 down 13.5 on the day as vol declined across the curve. I marked TYZ at 6.6 vol yesterday, having been over 10 in mid-October. Nov midcurve options expire today, with the one-day straddles settling 8 to 9 bps yesterday. Beware of crazy late day moves.
–Banks closed for Veteran’s Day, but CME screens open a full session and Vet’s Day isn’t even listed on the CME holiday calendar. For shame! (It’s on the Fed’s calendar). Old floor days a military unit would come onto the floor pre-open for an honor guard ceremony in the pit (pretty sure Stu Unger helped organize that). Dead silence except for clicking time clocks and unanswered phones.
