Feb 14. Baltic Freight and Bond Vol….crushed

–Trade activity remains rather quiet.  Yields pushed higher and the curve flattened yesterday.  The ten year was up 2.4 bps to 2.706% while the 30-yr bond only rose 1.1 to 3.033.  Not much change in one year spreads, though in the very front end of the curve, both June/Sept and Sept/Dec ED spreads notched new highs at 2.0 and 3.5 respectively as the strong stock market in 2019 rekindles the idea of possible rate hikes. It’s worth noting continued heavy volume in EDZ9…total volume was 430k with the next closest being EDH0 at 280k….in EDZ9 there was one sale clip of 50k at 9731.0.  The settlement was 9729.5, -4.0 on the day.  EDZ9/EDZ0 spread was +1 bp at -17.0, once again it’s the lowest spread on the curve.

–Possible extension of the China tariff decision push stocks a bit higher.  EUR is nearing new lows.  Late last year low was 1.1216 and now 1.1270.  

–NY Fed released UIG (Underlying Inflation Gauge) yesterday.  Perhaps not too important but seems to show a turndown.  “Prices only” set fell from 2.01% in Dec to 1.92% in Jan.

–A few charts below.  At the bottom is implied and historical vol on the 30-year bond contract, mired near historical lows (longer term chart) and quite a bit below 30 and 60 day historical (bottom shorter term chart).  In Q2 2018 the ten year yield was around 3.2% with fears of a push higher, now the market has become convinced the 30-yr is locked at 3%.  

–The chart immediately below highlights the Baltic Dry Freight Index in white.  Many commentators have mentioned the drop, but I was actually surprised to see that it has fallen by 2/3rds since Q2 2018!  I have added WTI crude and stocks on the chart below.  Everything bottomed in the energy rout of early 2016.  Currently, it’s only stocks that truly embrace the idea of Central Banks keeping the liquidity spigots going.

Below is a five year chart of Baltic Dry Freight Index in white, WTI Crude in yellow, and SPX in blue.  Everything bottomed in the start of 2016.  From there, oil lagged while SPX and BDI had a zig zag rally.  Since Q2 2018, the BDI has plunged by 2/3rds and is nearing the lows of 2016

Posted on February 14, 2019 at 5:19 am by alexmanzara · Permalink
In: Eurodollar Options

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