May 12. Should be a quiet start to the week.
–Fairly quiet day Friday. 5/30 treasury spread rose nearly 3 bps to 184, having bounced about 14 bps from the low of this calendar year which was set last Friday just below 170. This spread started the year around 220.
–Colleague John Brady sent an interesting chart this weekend noting that CRB Food Stuffs index has rallied some 23% since the beginning of the year! Of course, the ten year note also started out the year at 3% and is now hovering around 2.60. EU peripheral bond yields have collapsed this year as have US spreads. Bond markets globally appear to be pricing deflation rather than inflation. In spite of massive QE, and overwhelming debt, even Japanese tens remain anchored to a yield of just 60 bps. A Bloomberg article this weekend notes that China’s Xi says the country must adapt to slower growth as structural changes are implemented.
–The past week featured a fair amount of long put liquidation, especially in green euro$’s. There has been a gradual shift recently in levels of blue euro$ straddles relative to greens, where blues are higher on an absolute basis once again. For example, in April as the market geared up for the idea of a series of sustained FOMC rate hikes, the third blue straddle was 2 bps below the third green. On Friday green Dec 9787^ settled 59 compared to blue Dec 9712^ at 61. Just another reflection of a market that has moderated expectations of rate hikes and perhaps economic growth.
