June 23. Inflationary impulses could translate into steeper curve
–Long end weakness early Friday, but then bonds rallied back to leave the curve only marginally steeper. Red/gold euro$ pack spread closed up 1.25 bps to 223. As inflation concerns (or at least stiflingly high prices for necessities) creep back, it’s perhaps worth noting that ten yr tip/note spread is at its highest since early Jan at 230 bps. I don’t know why I even continue to watch this spread as it seems to have little predictive power, however, the last time it was this high (in January), red/gold was 285 vs Friday at 223 and 2/10 treasury spread was around 249 vs 216 now. Gasoline and oil are at new highs, and it doesn’t feel like peace is about to break out in mideast.
–This week the treasury auctions 2, 5 and 7 year notes. Chgo Fed Nat’l Activity Index today, was last -0.32.
–Employment report will be on July 3. Fed’s semi-annual testimony schedule hasn’t been confirmed to my knowledge, but should either be the week of July 14th or 21st. Midcurve July options expire Friday the 11th, but August treasury options expire 25th of July, so treasury options will capture this event.
–Implied vol wearing cement shoes. On Friday Green Sept 9812 straddle settled 32.5, versus 37.0 the week before. The red Sept 9925 straddle settled 42.0 (with 15 months to go) vs 44.5 the week prior. Ten year note contract has pretty much traded in a one point range between 123-24 to 124-24 for the entire month of June. TYQ 124.5^ settled 1’17.
