Nov 7 . Flatter Curve…a few debt notes

Curve continued flattening trend. I marked 2/10 at 70.3 on futures close. Volume was light. Notable new buyer of 25k TYF 124/123ps for 11; settled 10 ref 125-025.

–Large mover on the day was oil, with CLZ settling +1.71 at 57.35. It’s just slightly lower this morning as Saudis face both internal and external threats.

–Decent volume yesterday in EDZ18/Z19 which settled 18.5 (-1.5), 6.5 off the high set a couple of weeks ago at 25. Back spreads remain relatively flat, with EDZ18 heavily influenced by large remaining open interest in midcurves. November midcurves expire Friday, but there are still 650k open in 0EZ 9800p which settled 2.5 ref 9807.0.

–Peak spread is still EDZ7/EDZ8 at 40.5 bps, while FFF8/FFF9 settled 33.5. These spreads forecast only 1.5 hikes over 2018, a year in which we’ll have a substantially different FOMC composition.

–Attached is chart of market cap to GDP [ycharts and Daily Reckoning]. There’s nothing that says this measure can’t make a new high, but it certainly suggests that total earnings can’t grow much faster than GDP itself, especially given total business debt at a record $13.9T (Q2 2017). By the way, consumer credit is released this afternoon. Though there are occasional warnings on HH debt, the fact is that at $14.9T, it’s really not much larger than the peak in 2007 of $14.175T. There’s just been a substitution of student debt for mortgage debt. Total mortgage debt in 2007 was 10.6, now 9.9, and Consumer Credit (includes student debt now >$1T) was $2.6T and now 3.7T.

Posted on November 7, 2017 at 5:19 am by alexmanzara · Permalink
In: Eurodollar Options

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