Oct 19. 5/30 treasury spread as leading indicator…

Attached are charts showing comparison of 5/30 treasury spread vs USD and Commodities (GSCI), and below that, 5/30 vs 2/10 and red/gold euro$ pack.

The top chart indicates that 5/30 peaked well before the dollar and also before the commodity rally.  USD and GSCI moves were essentially simultaneous initially, though the dollar topped prior to the commodity index bottom (if indeed commodities have bottomed).  It appears as if 5/30 has the potential to rally further to around 180.

The lower chart compares the 5/30 treasury spread with 2/10 and red/gold euro$ pack spread. Through 2014 these spreads moved pretty much in tandem, though again, 5/30 appears to be the leader.  2/10 and red/gold trade much closer than 5/30.  However, since mid-August (when China devalued) the 5/30 spread has generally firmed and is near the high of 2015, while both red/gold and 2/10 have edged slightly lower.  Perhaps this is due to China selling long dated treasuries.  In any case, all of the curve spreads appear to have bottomed in Q1. 

Keying off the 5/30, I tend to think that red/gold euro$ pack spread allows a fairly low risk entry point for a curve steepener.  Low in red/gold has been just above 100 bps, currently around 124. 

5_30 vs USD and GSCI Oct 2015

 

5_30 2_10 red_gold

 

 

Posted on October 19, 2015 at 1:53 pm by alexmanzara · Permalink
In: Eurodollar Options

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