July 7, 2017. Yields threaten to push higher in front of today’s NFP

–Nasdaq erased Wednesday’s bounce, and ESU had the lowest settle since 31-May.  Oil faded from early strength but still closed positive, however CLQ is down over $1 as of this writing at 44.40.  Weakness in equities did little to stem selling pressure on fixed income, with tens closing 3.6 bps at 236.8.   Calendar spreads continued their widening trend, for example, red/gold pack spread gained nearly 3 bps to close at 66, the highest since late May. Nearly all one-year calendars made new monthly highs.  Red/green pack spread finally back above 25 bps again at 25.875, +1 on the day. The 2/10 treasury spread gained 4.4 bps to 96.6.  It has now exploded 17 bps since posting a new low of 79 on the FOMC day.  Of course, over the same time frame the German BOBL (5yr) has leapt 38 bps to yesterday’s -7.2.  There appears to be a global shift in sentiment, which Gundlach mentioned yesterday, apparently saying tens could again reach 3%.  However, the BoJ stopped the yield rise in the ten year JGB, offering to buy an unlimited amount at 11 bps.
–One other small note: the 30-yr bond yield rose 5.1 bps on the day to 290.4.  Thirty year options are becoming quite a bit more active.  While futures volume was 310k, option volume was over 216k.  August calls 53859, Sept calls 23561, Aug puts 111,746, and Sept puts 27171.  Worth keeping an eye on this, as it may portend a combination of term premium and inflation premium increase. (Almost twice as many puts as calls trade).

–Employment report today with NFP expected 178k.  ADP was weaker than expected yesterday at just 158k, but given last month’s surprise NFP of just 138k it’s reasonable to look for a solid bounce.  Besides this report, the Fed’s semi-annual report is released at 11:00 EST, and of course the G20 starts, as well as a meeting between Trump and Putin.

Posted on July 7, 2017 at 5:15 am by alexmanzara · Permalink
In: Eurodollar Options

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