Jan 19. Curve steepens; 2/30 near 400 bps.
Curve steepened to new highs with 2/10 up about 3 bps to 278. Red/gold also made a new high of 285.5, up 7.25 bps on the day. That’s pretty much as high as red/gold had been all last year, though in mid Dec before the roll it got to around 300. Whether due to signs of economic strength, or due to inflationary concerns, or a combination thereof, the back end appears to be losing sponsorship.
–The first two green straddles settled a bit lower than Friday. I marked Grn June 9775 straddle at 63.0, probably on the cheap side if long dated treasuries are vulnerable.
–In contrast to the long end, Fed Fund contracts are edging higher in price. For example, FFJ (April) settled 99.84, only 16 bps. So far this year Fed effective rate has been around 16 -17 bps so the price itself isn’t completely surprising, I guess it’s just another sign of Fed liquidity that finds its way into stocks and commodities.
–I can’t help but think that higher rates are going to translate into weaker real estate sales, especially at the low and middle. Once again, the Fed makes a compelling case for consumers to take short term adjustable rate mortgages in order for the cash flow to work. And then re-sets inevitably occur. The difference this time is that low short term rates aren’t causing price increases, because credit availability is also tighter.
