April 10. FOMC minutes reveal a Fed that regularly muddies its message
–FOMC minutes caused the market to further reassess the bearish message which had been telegraphed by the blue dots and Yellen’s press conference at the last Fed meeting. Pressure on greens and 5 year notes was alleviated as trades were unwound. Greens were the strongest on the curve, closing +5.875, while golds were only +1.375. 5/30 treasury spread jumped 6 bps to 193.5 as 30 year bond futures fell while tens rallied after minutes. As an example of the round trip move regarding Fed sentiment, consider EDH5/H6/H7 butterfly which rallied from -21 all the way up to -3 as the market pushed up the timeline for (aggressive) Fed tightening, only to fall back to -9.5 after the employment report, and -16.5 at yesterday’s close. [The rally in the fly was due to the EDH5/6 spread widening as tightening was expected to begin in spring of next year. The spread went from 103 high, after FOMC but before employment, to 93.5 yesterday].
–Stocks had a banner day, seizing on the message of continued central bank accommodation. Today’s news includes Jobless Claims expected 318k, and 30 yr bond auction. I suppose that Greece’s return to bond markets with an issue carrying a 4.75 coupon makes the US bond yield look juicy by comparison at 3.57. Charles Evans of the Chicago Fed speaks, though it almost seems incongruous to argue for continued Fed largesse as more and more building cranes dot the downtown Chicago skyline. There isn’t a single street in this town that doesn’t need resurfacing after the brutal winter; construction jobs should boom. In my community just north of the city, I would say that teardowns to make way for new residences are near the peak levels (pre-crash).
–There was a new seller of about 20k Green Dec 9800c yesterday at 20. I marked Green Dec 9787^ at 64.5, and the Green Sept 9800^, which had been heavily sold a couple of days ago at 50.5, settled 49.5. In general, vol remains anchored, though there was 2 way trade in TYM straddle yesterday, 4% holding for now…
