Higher yields
September 27, 2021
–EDZ3 trades 9879 this morning, -3.5 from Friday’s settle, and the lowest price since early April. Auctions of 2 and 5 year notes today, followed by 7s tomorrow. We’re seeing a concession for auctions…is it enough? Brainard slated to give a speech on the Economic landscape at 12:50. Williams speaks at noon, also discussing the outlook, but Brainard is more important for policy. I would suspect both will say that conditions for taper either have been or are very close to having been met.
–Friday saw a notable buy of 50k FVZ 121.75p for 11.5 ref 122-27. This morning FVZ has traded a low of 122-20.75. The cash 5y yield is 98 bps, a new high on the year. The WI prints 1.00%. WTI crude CLX1 has traded over $75/bbl today, a new high for the year. NatGas also surging, though below the highs set a couple of weeks ago. News articles abound this weekend about the energy crisis in Europe, and in northern China, where industries such as textiles and steel mfg are said to be subject to power outages. High natural gas and electricity prices have caused suspension of activity at some fertilizer plants. Food and energy. And shelter. Look, if you strip those prices out, it’s really not that bad. Right?
–In eurodollars, red/green (2nd to 3rd year forward) calendar spread made a new high Friday just over 59 bps. The high in red/green in early April was 67.5…worth making a mental note of that level. 2/10 prints 120 this morning. Late march high was 157.6. 2/5 prints 70, high for the year has been 77.5.
–Bundesbank today said German inflation is expected to peak at 4-5% this year and will stay above 2% through mid-2022, exceeding the ECB’s target. Bund yield continues to climb toward 0, now -20.6 as the political shift creates further uncertainty.
