March 14. Market disocations generally support bonds

–Slightly stronger than expected headline Retail Sales and lower Job Claims caused an initial flurry of selling in interest rate futures, but pressure quickly abated as previous retail numbers were revised lower and tensions flared in Ukraine.  Ten year yield fell nearly 8 bps to 265.4.  Blue eurodollar pack was the strongest point of the curve, up nearly 10 bps.  Red/gold pack spread made a new low of 263, down nearly 5 bps on the day.  Like every thing in the interest rate world, it was May thru July of 2013 that saw wrenching adjustments in spreads, red/gold went from 150 to 280.  Should now find some support around 250.  One year calendar spreads declined, with green/blue spreads posting new lows.  EDZ15/16 still the highest, but now only 100.5 bps.
–Though Russia/Ukraine is cited as a reason for market moves, that situation is probably more of a sideshow as compared to the continued plunge in raw materials that threatens to cause massive financial dislocations in China. TV analysts were happy to credit China’s rise and more recently Japan’s success with QE as tailwinds to the inexorable rise in US stocks, but turn a blind eye to the problems.  Japan -3% today, near a new low for this calendar year.  Hong Kong -1%.
–GS cut its Q1 GDP tracking from 1.7 to 1.5.  Perhaps it’s due to weather but no matter what, inflation is still running below Fed’s target (PPI today expected +0.2).  The other day I was directed to a BBG article (thx WHM) which noted that housing accounts for 17% of CPI and the article cited several professionals that say rents have stalled…disinflationary.  Fischer speaks today, and in recent comments highlighted weak employment and low inflation. He also mentioned that his time at Citi gave him invaluable experience, otherwise he would have joined the Fed as an academic.
–ZH has an interesting article about Glencore and copper prices (thx JK).  http://www.zerohedge.com/news/2014-03-13/cheapest-and-most-levered-way-play-chinese-credit-commodity-crunch  Probably starting today and going into next week there will be continuous rumors of large trading firms “being in trouble.”  Hopefully Fischer’s corporate banking experience helps him and the Fed respond.

Posted on March 14, 2014 at 5:17 am by alexmanzara · Permalink
In: Eurodollar Options

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