May 1. Raising cash
–Yields pushed a bit higher yesterday, led by the five year (+1.3 to 143.5) and green euro$ pack which fell 4.25 bps. There were some large trades which indicate a sentiment change regarding both interest rates and risk in general. And by risk, I am not specifically talking about ‘risk assets’ which might have a tendency to support treasuries if they fall, but also risk as related to the broader idea of liquidity (and lack thereof).
–Option trade was heavy and implieds firmed from a low base. For example, there was a new buyer of 25k Blue July 9775 straddles for 35 bps. Just on the basis of possible futures movement in the next two months this seems cheap. New buyer of 30k midcurve July 9875 put, settled 9.75 with EDU6 9881.5. This trade appears to be a play for the possibility of a bit more tightening than is currently being priced. There was also a new seller of 25k July Fed Funds at 9985 and 9984.5. This trade is specifically protection/speculation on a June rate hike; risk 2.5 make 22.5…are the odds of a June hike more that 10%.
–Gold was clobbered, dropping $28. Ever had to turn in the spare change jar to get some usable cash on which to make it through the next few days? I have. And that’s what the gold move looked like…a cash raiser. I don’t know if its related, but the FT has a piece noting that the Saudis have been burning through reserves due to weak oil burning a hole in the budget. Reserves fell $20b in Feb and another $16b in March. A decline in oil revenue is also cutting demand for precious metals. Could some treasury selling be related? And could it be that stretched budgets also add to the low liquidity environment?
–ISM today expected 52.0.
