E – M – P – I -R – E
January 18, 2023
–BOJ held to ultra easy policy and the 50bp cap on 10y JGBs, causing long yields to ease and $/yen to rebound to 131.50 (now just over 129). Yesterday US tens were up 2.2 bps in yield to 3.53% but now 3.476%.
–Many years ago in the euro$ option pit when it was packed with traders at the 30 S Wacker floor, a newer filling broker got a huge buy order right near the close. Something like 10k contracts. The broker started buying, but in those days when the 2:00 pm bell rang, trading was over. The broker, in his panic to fill the order before the bell, significantly over bought, by several thousand contracts if I remember correctly, and it wasn’t a low delta trade. He realizes his error after the close, and frantically is trying to find all the locals that sold to him to beg them to shave back their totals so that he’s not stuck on the extra buys. As many people that would cram into the pit during the day, it emptied immediately after the bell, so by 2:05 maybe a tenth of the pit would still be standing around. The broker, still in what is called ‘a personal fast market’ is trying to find someone who had already left and breathlessly asks URP, a large market maker, if he has this other guy’s phone number. URP says yeah, probably, and studiously looks at his phone and says, “Oh yeah, here it is: 312 588 2300”. The broker immediately jumps on a phone and calls.
Anybody who grew up in Chicago knows “five eight eight, two three hundred” is the Empire Carpets advertising jingle, because those ads ran day and night. Of course, Steve, in his panic, didn’t recognize it, and got the Empire Carpets switchboard. Now that’s funny. And all I heard in my head when I saw the abysmal Empire State manufacturing number at -32.9 was the jingle: 5 8 8 2 3 hundred, EMP – IRE! Anyway, that’s a long detour just to note that Empire was the worst it’s been since the GFC, outside of the brief covid spike down.
–Today we have Retail Sales expected -0.9, PPI -0.1 with yoy 6.8% and Core 5.6%. IP and Beige Book as well. 20 year auction.
–SFRZ3 9562.5 settled 70 ref 9566. Some buying at 71 occurred, but recall this straddle was sold heavily just a couple of weeks ago at 84 to 80.
–Somewhat interesting note from the NY Fed yesterday noting the increase in discount window borrowings. In the old days, borrowing from the discount window meant trouble, a stigmatizing last resort. Takeaways from the paper: In March 2020 during Covid, the Fed made two changes: it eliminated the punative spread to FF and tenor was increased to 90 days. Stigma has faded and now smaller banks are tapping the DW as the rate is lower than borrowing from FHLBs. Just another case of a small shift in market risk to the government from the private sector.
