No political agreement, but market signals agree: Curve is steepening

December 19, 2019

–With the impeachment vote, the House was able to send a really important message to Trump that they just don’t like him.  Stocks remain near all-time-highs this morning, and bonds are lower; the market has concluded that more gov’t stimulus is likely to result.

–Great interview yesterday with Stanley Druckenmiller and BBG’s Eric Schatzker.  Druckenmiller is: Constructive equities because of the fiscal, monetary and employment backdrop.  Long equities, short bonds, long some commodities (include copper) long commodity ccys.ES:  Central banks are determined to get inflation above 2%.  “Does inflation matter?”
SD: There are 14 recognized measures of inflation, 12 are above 2%.  The Fed’s preferred measure PCE is 1.7%.  The Fed is taking tremendous stability risks with these policies. Finally, “You cannot have capitalism if you don’t have a hurdle rate for investment.”

–Regarding the long copper position, note that yesterday BBG updated a note on Gundlach’s indicator of the copper/gold ratio as a correlated leader of the US ten year yield.  I posted an updated chart on twitter…both pointing higher.

–In terms of market action yesterday, new recent highs in several measures of the curve.  Most importantly, 2/10 made a new high for the year at 28.7 bps, up 3 on the day.  Red/gold pack spread also at a new recent high at 27.875 (this is not a new high for the year, that was at 43 in June).  Surprisingly, there is no reach, YET, for puts.  I would make another quick observation that ERH21/ERH23 posted a new high at 24.0.  Almost everything is pointing in the same direction.  Hard to ignore.  

–Large action in ten year options was a roll down of TYF/G 130 call calendar into the 129 call calendar.  TYF 129c settled 3 and TYG 129c 18 vs 128-055.  Jan options expire one week from tomorrow.  In euro$, buying of EDH0 9825/9837/9850 c fly for 1.25.  There is relentless long accumulation of EDU0 9875c.  Yesterday, +30k EDU0 9875/9900cs vs 9812.5p.  This package settled flat, 4.50, 2.25 and 2.25. 

–Finally, today Sweden’s Riksbank ended five years of negative rates by hiking to zero.   

Posted on December 19, 2019 at 5:00 am by alexmanzara · Permalink
In: Eurodollar Options

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