Aug 8. Herd mentality

–Rates trading continues to underwhelm, with tens rebounding 3.9 bps to 2.973.  Ten year auction today, followed by 30’s tomorrow.  Near eurodollar calendar spreads remain well bid. with EDU8/EDU9 closing at its high of 60 bps.  EDU8/EDZ8 edged to a new high settle of 25.5.  Decent amount of trade in December midcurves, for example, 20k 2EZ 9687/9675/9662 put tree bought for a small credit (sold pieces).  Settled -0.5 (14.0, 9.0, 5.5 vs 9693.0; 9 call delta).  Back end of dollar curve completely flat.  Red and blue packs (2nd and 4th year) settled at identical prices: 96.94625.
–Warnings continue, this one from Pimco’s Dan Ivascyn: “Now the major central banks are trying to step away from the accommodation that they have provided to the markets for many years, and their influence is being quickly replaced by that of politics.” [huh?]  “For both equity and fixed income investors, we think this means lower returns and, unfortunately, higher volatility.”
Except that we aren’t seeing much in the way of volatility.  On CNBC yesterday Goldman’s Kostin said something like $750 billion in share buybacks have already been authorized this year.  Another later guest (I missed his name, from Centerstone) said the number of names on the NYSE has been declining, down by about half in recent years, due to M&A, firms going private etc, while the opposite is true in Europe and Asia.  I suppose Tesla’s announcement yesterday is indicative…  There was a clip out yesterday that the PBOC is telling banks to avoid ‘herd behavior’ with respect to the yuan.  In the US, buybacks coupled with low rates are herding people into equities.
–Consumer credit data surprised by being weak, up only $10.2b vs expected $15b, but revolving credit actually FELL.  Likely just payback from previous strong month.  But could it partially be due to banks starting to tighten credit standards?  Attached chart shows banks modestly tighter on personal loans and credit cards.
–One last note, posted yesterday (thanks AOK) “Making the rounds on Chinese social media. Apple alone would account for 1/6 of total Chinese stock market value.  But then, Shanghai alone would account for 1/6 total US housing stock (@ WeiDuCNA)  [of course, population of Shanghai is ~25 million]
The % of Domestic Banks Tightening Standards on Consumer loans and Credit Cards
Posted on August 8, 2018 at 5:29 am by alexmanzara · Permalink
In: Eurodollar Options

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