July 26. Long end leads rates higher

–Longer dated treasuries led the fixed income market lower Tuesday, in front of today’s FOMC meeting. Tens finished up 7.1 bps to 232.3 and 30y +7.5 bps to 290.7. The curve steepened, with red/gold pack spread gaining an impressive 4.25 bps to 62.25, as the gold pack (5th year) fell nearly 9 bps. While no rate change is expected at today’s FOMC, there could be hints that balance sheet reduction will begin in September. The ease in general financial conditions will certainly be a factor as USD weakens, long end yields remain low, stocks press to new highs, corporate spreads tighten. (Junk bond etf’s, like everything else except for GE and IBM, are making new highs). It’s little wonder that consumer confidence posted its second best reading since 2001.

–I mentioned the strengthening of the copper/gold ratio yesterday that Gundlach often refers to as an indicator for treasury yields. It’s higher again this morning with copper building on gains after yesterday’s upside breakout and gold down this morning. On yesterday’s sell off in bonds, implied vol firmed, with TY vol again approaching 4%. USU 153 straddle settled 2’46 ref 152-20. Two days ago the atm straddle was just above 2’30. One last thing arguing for higher rates at the long end was this Trump quote in a WSJ interview about who might be in the running for the Fed Chair, “I’d like to see rates stay low.”

–Apart from the FOMC meeting, New Home Sales are released this morning expected 611k and 5’s are auctioned.

Posted on July 26, 2017 at 5:14 am by alexmanzara · Permalink
In: Eurodollar Options

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