Feb 12. Stockman’s been sounding that same warning (for the past 33 years)

–In an echo of Ronald Reagan’s administration, US Budget Director Mick Mulvaney said larger deficits this year may cause interest rates to “spike” and said further, “…rising budget deficits are “a very dangerous idea, but it’s the world we live in.”  In Reagan’s day the budget director was David Stockman, the supply side guru who said in a magazine article, “None of us really understands what’s going on with all these numbers.”   He, like Mulvaney, was concerned about deficit spending.  He resigned in 1985, critical of the Congress; he had favored “a reduction of government spending to offset large tax decreases to avoid the creation of large deficits and an increasing national debt.”  Sound familiar?  Today the administration is set to unroll its infrastructure program (WSJ).


–On Friday rates eased slightly with the ten year down 2.7 bps to 282.6.  This morning stocks are trading a bit higher, fixed income again under pressure due to Mulvaney’s comments and concern about this week’s inflation data, with CPI on Wednesday.  The bond market is increasingly uncomfortable with the idea of growing supply in an era of QT.  However, there are flashes of disaster insurance purchases, for example, a buyer of >100k EDJ 9812c for 1.25 on Friday.  New highs in many curve measures, with red/gold pack spread gaining 3.25 bps to a new recent high just over 42 bps.  5/30 jumped 7.5 bps to 62.3.

Posted on February 12, 2018 at 5:13 am by alexmanzara · Permalink
In: Eurodollar Options

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