April 4. Safe bonds in high demand

–Near eurodollar calendar spreads were crushed as the market shaved back the odds of forward rate hikes.  While July Fed Funds settled unchanged at 9896 (indicating around 55% odds of a June move), the Sept’7/Dec’7 eurodollar spread closed at just 10 bps, down 2 on the day.  Reds to greens (2nd to 3rd year) closed at 30.875, down 1.625 on the day and a new recent low.  The peak one-year euro$ calendar spread is June’17/June’18, which plunged 4.5 to a new low of 44.5 (high in December had been 61.5).  Most spreads are as low as they have been since December.  Weakness across the commodity sector, though precious metals remain perky, threatening highs of late Feb.

–The ten year also fell to a new recent low, -4.7 bps to 2.346.  There was some talk that the new Japanese year was associated with large treasury buying, (Japan is the largest foreign holder of UST). A client also mentioned that Europe would have negative issuance this month.  I would also note that swap spreads are making new highs; maybe there just aren’t enough high-quality bonds out there…

However, news from the auto industry also continues to cast a shadow on the US economy at large.

(MNI): SMRA analyst Alan Chernoff said March US domestic light vehicle sales totaled 12.6 Mln and “the results are not pretty. Vehicle sales fell substantially in March compared to February, and most manufacturers saw year over year declines in both domestic car and truck sales.”  This is the weakest selling pace for car sales since December 2011. Light truck sales also sunk in March and fell to 8.27 mln (SAAR) compared to the 8.88 mln selling pace reached in February. March domestic light vehicle sales fell to 12.6 mln units, below expectations and far below February’s 13.60 mln selling pace.”  I would add that loans are deteriorating in quality.  Maybe it’s just this simple: car sales at the margin go to Uber drivers, and the uber model has now become saturated.
–Note: peak open interest in May TY options:  MAY 126 calls with 86k (added 15k yesterday).  That’s about 12 bps away, or a bit under 2.25%.
–Internat’l Trades expected -44.5 b, Factory Orders expected +1.0.
Posted on April 4, 2017 at 5:24 am by alexmanzara · Permalink
In: Eurodollar Options

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