Feb 26. The tree of the FF target vs the forest of global bond buying
(Reuters) – German seven-year bond yields fell below zero for the first time ever on Thursday, as investors positioned themselves for an extended era of cheap money ahead of the European Central Bank’s looming bond-buying scheme. Bloomberg reports that Portugal’s tens are below 2%.
–In the US, the ten year yield fell again yesterday by a bit over 2 bps to 196.5. Longer dated maturities outperformed, with red/gold euro$ pack spread down 3 bps, reds -0.875 and golds +2.125. There was premium selling across the board, notably a sale of about 50k EDM5 9962.5 straddles from 11 to 10.5 (ref 9962.0). Note that the June FOMC is on the 17th, but EDM5 expires June 15, so there might not be 100% certainty of the outcome priced into the contract at expiry. On the other hand, the Fed is so fearful of creating any market ripples, perhaps June’s FOMC result will be telegraphed by late May. It’s the forest for the trees…there’s much hand wringing about the Fed’s first change in FF, while bond yields are dropping all over the world due to a shortage of collateral given bond buying “schemes” globally. At the same time, the inevitable downgrades of energy related companies continue, like Brazil’s Petrobras (PBR) and Transocean (RIG), cut to junk by Moody’s.
–Today’s US news includes CPI, expected -0.6% with negative Core as well, -0.1. Durables expected +2.0 and Jobless Claims 290k. Seven year treasury auction, providing stark contrast with Germany at zero and the US around 175.
