Federal debt has a ceiling. Crude oil calls don’t
Sept 29, 2021
–Yields jumped as energy costs continue to surge, with the debt ceiling process adding drama. Tens up 5.4 bps to 1.536%. Once again the eurodollar curve steepened, with many one-yr calendars edging to new highs. Peak EDU’22/EDU’23 settled 72.5, up 1 at a new high. Red/gold pack spread settled over 120 bps, also a new recent high, while 2/10 ended at 123, the high since June when the FOMC meeting sparked a broad flattening move. On the June FOMC day EDZ’22/EDZ’23 traded 118.5; yesterday it settled 113.5 and printed 115, almost a complete recovery.
–Yellen warned the Treasury may not be able to make all commitments after October 18. Jamie Dimon said he is positioning JPM for a “potentially catastrophic” outcome. SPX fell 2% but Nasdaq led the way, closing -2.8%. Treasury implied vol rose, but there is no panicked put buying. TYZ 131.5^ settled 1’56, 4.5 vol.
–Lagarde said a challenge is to look past “transitory shocks”, without mentioning that Central Banks are partially responsible for creating bottleneck conditions. Ditto for Powell, who Senator Warren is calling “dangerous”.
–In yesterday’s note I led off with a comment on CLZ’21 100 calls. During the day, Dec’22 200c in WTI opened up with a trade at 8 cents and settled 6 against a futures settle of $67.82 in CLZ’22. CLZ’22 150 calls settled 19 cents.
