Oct 2. Flat curve going into payrolls. Demand for physical.

–Employment report today with NFP expected 200k.  Going into the data many curve spreads are at or near their lows.  For example 2/10 treasury made a slight new low just below 140 bps.  Euro$ one-year calendar spreads are all right at their lows, with a peak of only 55.5 bps.  Many argue that these spreads are too low, but, like the weather, no one seems to do much about it, either because they want to keep their powder dry or have already run out of ammo.  Easy risk/reward would appear to indicate more downside than upside in terms of bond prices, but I’m not so sure.
–From the Atl Fed, a big drop in Q3 estimate of growth. “The GDPNow model nowcast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 0.9 percent on October 1, down from 1.8 percent on September 28. The model’s nowcast for the contribution of net exports to third-quarter real GDP growth fell 0.7 percentage points to -0.9 percentage points on September 29 following the advance report on U.S. international trade in goods from the U.S. Census Bureau.” [dollar strength killing net exports]
–In other news, Treasury Sec’y Lew says the US will run out of money on Nov 5.  Here comes the debt ceiling fight, exactly a year before the election.
–Auto sales yesterday were much stronger than expected at an 18.2 million unit rate.  Cheap gas along with cheap financing and lengthening terms.  Seems stretched.
–I jotted out a note yesterday about visiting a coin dealer and the premium over spot on silver American Eagles was $6, 40% of the spot price and double the premium of a few months ago.  Sure enough, there is a story on Reuters today citing a huge shortage of physical coins, though one source blamed a crunch in manufacturing capacity. http://mobile.reuters.com/article/idUSKCN0RU30220151001
In an interesting juxtaposition, I saw a story that sugar has exploded in price, from 11.00 to 13.24 in a few days (a 20% gain) because one big user took delivery.  Makes one think about an increase in physical delivery, on precious metals for example, relative to all the paper claims on the physical.  Commodity markets have already been roiled.  If there is one thing that could take the air out of bond bulls it would be a torching surge in commodity markets.  Having said that, I would note new lows yesterday in HYG and JNK, in spite of an up market.  Some paper claims are already getting torched.

Posted on October 2, 2015 at 5:03 am by alexmanzara · Permalink
In: Eurodollar Options

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