August 19. Dudley, Williams and even Greenspan call for hikes; yields decline

–Crude oil continued its rally, with CLU6 up 150 late to 4829, closing at a new high for August.  In related news, high yield ETFs (sensitive to energy companies) easily surged to new highs for the year.  Emerging market bonds are also seeing heavy inflows.

–In US rate futures, volume was quite low.  On Wednesday EDZ6 traded 533k contracts, yesterday was less than half that at 236k.  Total euro$ volume was 1.023m compared to Wednesday’s 2.746m.  Yields eased even as Dudley said that strong jobs data had allayed concerns about a slowdown.  Greenspan said that interest rates might rise soon, and rapidly.  Williams called for a rate hike “sooner rather than later” though he said gradual increases make sense.  However, the ten year yield fell 4.2 bps to 153.4, and green euro$’s (strongest) were up 4.125 bps in price.

–Yesterday I heard a couple of warnings about consumer credit, apparently alluding to the precarious state of household finances.  The Federal Reserve puts out a series know as the Financial Obligation Ratio, which measures household debt service as a % of disposable personal income.  As of Q1 2016, that ratio stands at 15.31, actually the second lowest number since 2000, with only one reading lower at 14.92 in Q4 2012.  If there’s a debt blow-up this time around, it’s likely to come from the corporate side, not households.

Posted on August 19, 2016 at 5:16 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply