May 22. New low VIX. New high Oil
–Slight rise in yields yesterday. 5/30 treasury spread rose 4 bps to recent new high, having now bounced 20 bps off its low set in the beginning of the month. VIX index sank to a new low below 12 as stocks rallied, though there was a buyer yesterday of 150k Sept VIX 19/28 call spreads for 0.85. I would also note that crude oil yesterday surged over 1.50/bbl to trade new recent highs of $104. Inflationary, or just another increase in the price of necessities that crimps consumers in other areas?
–In any case, tens seem to be taking a pause around the lower end of the broad 2.50 to 3.00% range. Many are hoping and praying that the next strong move is a bounce in yields, but the market still doesn’t seem to respond to what should be bearish news. Today we have Job Claims expected 310k, Flash Mfg PMI 55.9, Existing Homes 4.69 and LEI +0.4.
–The peak one-year euro$ spread continues to be EDZ5/EDZ6 but it’s now only 105.5, a new low (-1.0). There was heavy buying of Short Dec (EDZ5 underlying) 9900/9875ps vs 9937c though trade was done covered. Also a large exit seller of Green June 9837p at 1.5. In the early part of the month EDM6 was below that strike, but it’s now a distant memory with vols compressing and the contract at 9860.5.
–While yesterday’s Fed minutes seemed to be mostly concerned with technicalities of how to get funding rates off the zero bound, I read an interesting note about a presentation given last week titled Slow and Low, which apparently is the framework Fed staffers are using, suggestive of a much lower potential growth rate of the US economy. I can’t properly summarize, but strongly recommend the link (thanks WHM). http://www.minyanville.com/articles/print.php?a=55016
