No one likes higher energy prices

October 6, 2021

–I saw a few morning bullet points yesterday about inflation breakevens making new recent highs in the US and Germany.  The US ten-year note vs inflation-indexed note yield spread hit 245 bps yesterday, a recent high but below the May peak of 257 bps.  Energy prices continue to surge with new highs in Natgas and CLX1.  Unsurprisingly the peak on the Natty curve is Jan22 at 6.467; the near contract is the highest since 2008, when it was on its way back down from 13.57.  The high in 2014 is 6.06.  Some are pointing to energy prices as a reason for the stocks breaking lower early this morning…as of this writing ESZ is 4277, down 57 on the day and nearing the recent low of 4260.  Maybe it’s just October.    
–The 10 year gilt reached the highest yield since the middle of 2019 at 1.08%, almost exactly at the 0.618 retrace from the 2018 high of 1.72% to the Q3 2020 low of 0.08%.  The German bund was -18.8 bps yesterday; the high of the year has been -10.3 bps, but this is near the high end of the range for the past 2 1/2 years. 
–There is little reaction in US bonds to equity weakness, futures are slightly lower this morning as we await ADP expected around 425k.  This report carries some extra weight as the St Louis Fed suggested the payroll number Friday could be weak.  Implied vol was slightly firmer yesterday.

Posted on October 6, 2021 at 5:08 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply