I’ll let my money do the work
September 24, 2021
–Rates took a powerful jump yesterday (as did stock futures), with tens up 8.2 bps to 1.406% as the FOMC was digested and BOE tilted hawkish. The main steepening took place in the front end of the curve where all near euro$ one-yr calendars made new recent highs. EDZ’21/EDZ’22 gained 2.5 to 31, having been hovering right around 1/4% prior to the FOMC. The peak 1-yr spread on the curve is still EDU’22/EDU23 which jumped 3.5 to a new high of 71.0; previously the upper end of the longer term range had been 68. On a side note, short sterling Dec’21/Dec’22 surged 7 bps to 55.5. Even 2/10 treasury spread squeaked to a new (minor) recent high of 115 bps. There was a little bit of buying of front libor puts: new buys of about 20k each EDX1 9975p for 0.75 and EDZ1 9968.75 put for 0.75 (both settled 0.75 vs EDZ1 9981.0). These buys are relics of the past, when credit concerns sparked panicked insurance buys on the front end as libor might violently adjust higher. Now, news that Evergrande isn’t paying its obligations to off-shore creditors is barely met with a shrug. Contagion is contained by our helpful central bankers. For example, the FOMC at this meeting doubled the repo counterparty cap to $160 billion, implemented to smooth money markets as t-bills covering debt-limit limbo are shunned in favor of repo. And where else can we see the Fed’s gentle footprints? Here are a few Z.1 Net Worth highlight for Q2:
U.S. HOUSEHOLD NET WORTH ROSE TO RECORD $141.7 TRLN IN Q2 2021 VS. $135.8 TRLN IN Q1 AND FROM $118.5 TRLN A YEAR EARLIER, FEDERAL RESERVE SAYS IN QUARTERLY REPORT
– STOCK MARKET GAINS ADDED $3.5 TRLN TO U.S. HOUSEHOLD NET WORTH IN Q2; REAL ESTATE ADDED ABOUT $1.2 TRLN, FED SAYS
– HOUSEHOLD DEBT GREW AT 7.9% ANNUALIZED RATE IN Q2 VS. 6.7% IN Q1, FED SAYS
– FEDERAL GOVERNMENT DEBT GREW AT 9.6% ANNUALIZED RATE IN Q2 VS 9.0% IN Q1, FED SAYS
An article on ZH points out that the ratio of Household Net Worth to Disposable Net Income surged to a grotesque 786%. This ratio has averaged 540%. Link below, worth a quick skim.
–So, HH net worth rose $23.2 trillion on the year. That’s GDP. Essentially the same number. (if my investments are making as much as my ‘income’ then why work?) The $3.5 trillion spending package? Why that’s equal to stock market gains for the 2nd quarter. I’m no expert, but Fed’l gov’t debt growth of 9 to 9.6% almost has to be inflationary; if that particular plate stops spinning then “transitory” will have turned out to be exactly correct, because we’ll all be victims of a reverse wealth-effect steamroller.
–Open interest in FV futures rose 39k and in TY up 54k. Fear is returning to the downside, but there was NOT a significant reach for puts…YET. October options expire in treasuries today, so there were clearly some gamma issues, as evidenced by the late day puke in futures from a settlement of 132-12 in TYZ to 132-05 prior to the end of the session. At yesterday’s close TYV 132.5p have 51k open (14s) and 132 puts have 74k open (3s).
https://www.zerohedge.com/markets/has-be-mistake
