May 13. 50% retrace levels in tens and bonds (yields) hold, for now
–Tuesday started with bond weakness across the globe, but as both tens and 30’s hit (and slightly surpassed) 50% retracement levels from the high yields of 2014 to the lows this year, the market found support and bounced. 50% levels are 233.5 in tens and 309.5 in bonds. (Tens ended at 225.8). Implied vol opened at new highs. For example, TYU 125.5 straddle, which was at the money on the open, was initially quoted 3’18/3’22. As the market rallied, the 126.5 straddle was sold at 3’04 and settled there (5.8 vol). By the end of the day, settlements in all interest rate futures were little changed.
–Today brings Retail Sales, expected +0.2 with Core +0.4. While consumer credit as a whole has had decent growth, revolving credit, which I believe is most closely related to retail sales, has been quite weak, though perhaps due for a rebound. Ten year auction today as well.
–From yesterday’s treasury budget: (BBG) “Individual income taxes, which make up 49 percent of the government’s receipts, are up a year-on-year 12.9 percent now 7 months into fiscal 2015. Corporate taxes, which make up only 9.3 percent of receipts, are up 11.8 percent.” With the booming growth in tax receipts, wouldn’t it make sense to think that the economy as a whole is firing on all cylinders? Or are tax payments siphoning growth away?
–In any case, it’s not all rosy in public finance, as Moody’s cut Chicago to junk. Just to put it in perspective, I think the GDP of the Chicago metro area is over $500 billion, about twice the size of Greece. (Although ex-greek restaurants, it’s probably about even).
