Curves wailing

September 16, 2022

–Reds were crushed yesterday with EDU’23 thru M’24 down 12.875.  Curve flattened to new recent lows.  Two-year up 8.5 bps to 3.867, highest since 2007.  5’s up 7.5 to 3.671, highest since 2008. Bond yield barely changed, lashed to the mast of 3.5%, sailing past Scylla with sirens wailing all around. Oct FF (FFV2) settled +0.5 at 9686 moving just slightly away from the chance of 100 next week and closer to the sanity of 75 (a price of 9692).  The ten-year inflation-indexed note closed 99.7 bps, a ‘real’ rate of 1%, high since 2018 (116 bps).  New recent low in 2/10 at -41 bps, but 5/30 made a new low for the year at -19.3 with open field to the 2000 low of -57.

–The attached chart shows red/green ED pack spread, a new low at -56 bps.  It has NEVER been this low and is unambiguously whispering to us that the economy is swirling the toilet.  

–I had mentioned SFRZ4/Z6 spread which, at the end of August and a few days into Sept. had been bought on blocks of 10k each at -15.5 and then -5.5.  It had almost poked its little nose above the surface of zero a few days ago, but was again clubbed like a baby seal and settled -18.5 (-4 on day; block of 5k at -18 yesterday). Again, I had thought it was a great expression for a Fed whose message was more gradual restraint…for a longer time.  The market is telling us the Fed’s about to overdo it, hiking and QT’ing and forward guiding into a rapidly breaking economy, and stocks are starting to crumble.  

–As Nasdaq faltered yesterday, notable buying occurred in TYX 117, 117.5, and 118 calls, settling 19, 15, 11 vs 114-16.  About 32k of new open interest, mostly in the 118 strike.

–A couple of news clips below (Maybe Powell should just hike by 5% to make sure rates get above inflation…):

Sept 16 (Reuters) – U.S. stock index futures slipped on Friday, extending falls from overnight, after logistics industry bellwether FedEx withdrew its financial forecast and recession warnings from the World Bank and the International Monetary Fund.

Argentina to Hike Interest Rates to 75% as Inflation Nears 100%

Posted on September 16, 2022 at 5:37 am by alexmanzara · Permalink
In: Eurodollar Options

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