Balanced
October 7, 2021
–A short-term debt limit extension helped ESZ burst out of the 4265/4360 range of October, now at 4380. Energy Sec’y Granholm suggested tapping strategic reserves, a factor in WTI pulling back from new highs.
–Rate futures were relatively quiet with tens easing slightly to 1.521%. ADP data was stronger than expected at 568k, but the previous month was revised down 34k from 374 to 340. On the dollar strip, the red pack (2nd year forward) was weakest on the board settling down 2 on the day. The average price of the reds is just above 99.26 or about 75 bps, versus current 3m libor of 12.5 bps. I have tracked FFN’22/FFN’23 as a spread which brackets the end of next year (when many expect rate hike liftoff). That spread rose 2.5 yesterday to 51.5, telegraphing 2 hikes over that one-year time period. High settle for this particular spread has been 54, at the end of last month.
–Tomorrow is the employment report, with NFP expected 450 to 500k. Week-2 treasury options expire tomorrow. Open interest gives no particular lean as to direction, 131.5/131.25/131.0 puts have about 74k of combined open interest. 132/132.25/132.5c have a bit over 75k. With TYZ having settled 131-23, both the 131.25p and 132.25c settled 5. There were a few decent size bond put lifts. USZ settled 159-15, USX 157p (20d) settled 26 and the 162c (19d) settled 22. Treasuries feel fairly well balanced around the 1.5% yield level.
