Jan 10, 2018. Ursa

–The idea of less CB bond buying going forward is seeping into the consciousness of the market as the BoJ yesterday said it would trim purchases of longer dated securities.  In the US, the ten year note jumped 6.2 bps to close 254.  The curve steepened, with 2’s only up 0.8 to 196.4, and 30y bonds +7.1 to 288.1.  Other bearish factors included a strong rally in oil (up 1.09 late to 62.81 and higher this a.m), and supply in the form of today’s 10y note auction followed by 30s tomorrow.

–Near eurodollar calendars made new highs.  The peak one-year spread, March’18/March’19 is nearing 1/2% closing at 48.5 yesterday.   EDZ8/9/0 fly settled 13.5 (sold heavily on Friday down to 14.5).  General steepening caused back month ED calendars to perk up, but green to blue pack spread is still under 7 bps.

–WSJ reported yesterday that the SNB made $55 Billion Last Year, “…record profit on higher global equity and bond prices and a weaker Swiss franc.” Or as friend JJ said, ‘the SNB discovered that printing money out of thin air and buying financial assets is profitable.’ SNB made $55b; nearly 10% of Swiss GDP (2016).

–In April of 2015, Bill Gross tweeted that bunds were the short of a lifetime.  The bund yield jumped from around 10 bps to nearly 100 by June.  Yesterday, he said the bond bear market is confirmed, due to 25 year trendlines being broken.  Gundlach is on the same page but thinks Gross is early (Gundlach watching corporate spreads to widen for indications of economic weakness).  The swing in CB asset buying is a key factor for JG negative outlook.

–A general shift to bearish sentiment in fixed income should cause an upward reset in implied vol.  Keep in mind that the composition of the Fed has changed.  Having said that, today we have speeches by uber-doves Evans and Bullard, who are likely to echo Kashkari’s comments yesterday…no matter how hard they look they just can’t find inflation.  Don’t be swayed by Fed doves who are now on the fringe of policy…


Gross: German 10yr Bunds = The short of a lifetime. Better than the pound in 1993. Only question is Timing / ECB QE

8:17 AM – Apr 21, 2015

Gross: Bond bear market confirmed today. 25 year long-term trendlines broken in 5yr and 10yr maturity Treasuries.

9:59 AM – Jan 9, 2018

Posted on January 10, 2018 at 4:49 am by alexmanzara · Permalink
In: Eurodollar Options

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