Bund yield sub-zero first time since 2016
March 22, 2019
–EDZ9/EDZ0 posted a new low settlement of -26.0 yesterday, with front Dec pressured in part by option trades (buyer of 40k EDZ9 9750/9737/9725/9712 put condor for 5.25). Also of note is that the Fed Effective rate ticked up to 2.41%, 1 bp above the interest on excess reserves, causing sales in front FF contracts. Net changes on the day in rate futures were negligible, although there was a slight flattening bias in the curve, with 5/30 pulling back from Wednesday’s new high of 64 to 62 yesterday. Ten year yield was unch’d at 2.537% even as stocks exploded higher.
–Forward euribor calendars are also making new lows, for example ERZ0/ERZ1 was +19.5 late as compared to EDZ0/Z1 at -3.5. The bund was at a yield of 4.1 bps yesterday and has sunk below zero today as the German PMI Mfg index fell to 44.7. its third decline in a row. Every time the Fed tries to depreciate USD, the Germans respond! Of course, yoy changes in S Korean Exports and Taiwan export orders near -10% continue to reflect gloom in global trade. In the US, PMI Composite today expected 55.2 from 55.5 with Mfg at 53.6. Existing Home Sales expected +2.2%.
–With a Fed effective of 2.41% the ten year yield is just 1/8% above that level. Even with the Fed’s capitulation this week, they haven’t been able to restore the lubricant of positive carry with 2’s and 5’s both sub-2.4%. Stocks seeing a slight pullback this morning following yesterday;s strength, with small-cap Russell the notable underperformer.
