June 10. Bond bears wave the white flag

–A skim of the news sites today shows that “government bond yields making new lows” is one of the day’s leading stories.  Except for the Chicago Trib, which mentions “1 dead, 12 injured in Chicago shootings.”  One might think that the bond story would be more important in Chicago, where Moody’s just downgraded Illinois again to just a couple of notches above junk.  An example of misplaced priorities I suppose.  But in case you find the Chicago story is more interesting, here’s a nice link of Chicago shooting stats, http://heyjackass.com/  that notes ytd “shot and wounded” in Chicago is 1383.
–US ten year yield eased a couple of bps yesterday to 167.8.  New recent low in 2/10 treasury spread to just above 91 bps.  Also a new low in the red/green euro$ pack spread to just 20 bps.  The market simply will not forecast forward tightening by the Fed.  There was substantial put liquidation yesterday, for example midcurve red December 9875p saw open interest decline 36k on heavy sales, settled 11.0 ref 9895.0 in EDZ7.  A solid jump in wholesale inventories of +0.6 caused some to increase Q2 GDP estimates, though inventory to sales ratio is still elevated at 1.35.  The FOMC next week is dead, though some are still holding a whisper of hope that a tightening could occur in July.  It won’t.
–Yields are lower again this morning, oil’s down, and even stocks are under a touch of pressure.  Interestingly, copper is near the low of the year, with HGN6 currently around 2.02 vs 195.80 as the year’s low, set in January.  A trade that got some notice was the US1N (week 1 July bond) 172/172.5 c spread, bought for 5/64’s.  Doesn’t look particularly bad this morning with USU 168-06 (+21)…the lower strike is only about 15 bps away, the cash bond yield closed yesterday at 248, and thirty year swaps are now below 2%.  Oh, and Russia says it will respond to a US warship entering the Black Sea.  So there’s that.  Happy Friday.

Posted on June 10, 2016 at 5:28 am by alexmanzara · Permalink
In: Eurodollar Options

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