May 15. Move to lower yields continues….CPI today expected +0.3 with Core +0.1
–Yields took a tumble yesterday with tens falling 7.5 bps to 254. Near euro$ calendar spreads made new lows. The peak one year is still EDZ5/Z6, which fell 2 bps to 110.5.
–Since July 2013, the ten yr has been in a range of just under 2.50% to just over 3%. In the past three months it had been 260 to 280. Now it is testing the 250 area again, which is also the 38% retracement of May’13 low of 163 to the subsequent taper high of 303 (actually 249.3). 50% retrace is 233 which is around the 124 strike basis TYM. By the way, the same 38% retrace level for fives is 1.39%, vs 1.56 close yesterday. So if the prospect of tightening REALLY starts to fade then fives and green euro$’s have some room to run.
–EUR has broken 137 this morning (136.71) as GDP reports show France at 0 growth and Italy contracting, making a June ease that much more likely. A strong report out of Japan is attributed to consumer spending in front of the sales tax hike, but the Nikkei has fallen about 0.75%. Why? Because it’s going down, that’s why…and more QE isn’t going to save Japanese equities from here. You might think that 5.9% annualized GDP would be somewhat bearish for JGB’s…I checked Bloomberg. 59 bps. :-/
–However, in dollar options, positions continue to be adjusted that are predicated on tightening. Sev’l months ago there was a large buyer of Short Dec (EDZ5 underlying) 9875/9837/9800 p flies for 5.5. Yesterday, this position was rolled into 9900/9875/9837p flies around 30k. And of course Green June options hold the most open interest, with selling yesterday of 9825p (OI -49k to 265k) and buying of 9837p (OI +21k to 170k).
