Easy markets create false fundamentals, weak fundamentals create tough times
December 28, 2023
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–Spot gold at highest close ever $2077 (though not so in GCG4, which settled at 2093.1, vs a high settle 2128.8 in early May).
–Yields continue to press lower. Solid five-year auction with seven-year coming today. According to BBG the year’s range on tens is 3.31% to 4.99%. Closed out yesterday at 3.79%, almost exactly where we started the year. So, we’re 48 off the low and 120 off the high.
–New low in SFRM4/U4 calendar at -42 (9550.5/9592.5). The most inverted one-year spread remains the first, SFRH4/H5 at -156.5 (9502.5/9659.0), down 4.5 on the day, also at a new low. The lowest level for the first one-yr spread was -192, set in May, and for the second slot it was -177. Currently the second 1-yr spread is SFRM4/M5 at -129.
–Price action in late April and early May, after the regional bank blow-ups, reflected fears of expanding fractures. That period featured a weak dollar, (DXY is now lower than May’s low), soaring gold, and the most inverted one-year SOFR calendars ever. Green SOFR contracts were around 2.75-2.8% (9720). Green pack settled yesterday at 9692.5 or 3.075%. However, it all reversed as the Fed did not ease. This time there’s little push-back against rapidly easing financial conditions, a fact not lost on equities. Is it worth noting a BBG article, ‘Prices of a Vital Food, Rice, Just Surged to a Fresh 15-Year High’ ?
