Broader implications?
November 16, 2022
–Implosion in near one-year calendars in short end curves. For example, EDM3/EDM4 closed -126.5, (9481.5/9608) down 11.5 on the day as 2024 contracts rallied around 15 bps. In SOFR, SFRM3 is the lowest contract on the strip at 9513.5, which implies a FF target of 4.75 to 5%. By contrast SFRM4 is 9634, consistent with FF target 3.50 to 3.75%. The main factors were continuing fallout of the FTX failure and reports of Russian missiles hitting a Polish village sparking Article 5 fears. Initial moves related to the latter sparked volatile moves, but temperatures have since been dialed down. PPI yoy was 8.0%, lower than expected 8.4.
–Implied vol jumped on the Poland news, with the TYF atm straddle jumping to 8.15; TYF 113^ settled 2’24 ref 112-27 vs 2’18 on Monday for the atm 112.5^. SFRU3 9537.5^ settled 87.5 ref 9534.0 from 86.25 Monday, having been sold down to 83 post-CPI.
–As of the 3:00 futures settlement, the 30yr yield was back below 4% for the first time in a month; marked at 3.98% with the w/i 20y at 4.185/4.18 in front of today’s auction.
–Retail Sales today expected +1.0%. Williams and Waller speak. In early to mid-October California sent out stimulus checks totaling $9.5 billion according to news reports, which likely boosted consumption. The NY Fed put out a couple of notes on Household Borrowing yesterday (link below). In Q2, “…credit card balances up $38b from the previous quarter. On a yoy basis, this marked a 15% increase, the largest in more than 20 years.” Of course, this is partially due to inflation. Delinquency rates are rising, but remain historically low.
