July 15. Curve steepened yesterday as the treasury concluded the 30-yr auction.
July 15. Curve steepened yesterday as the treasury concluded the 30-yr auction. The auction yield was at 4.197, but by the end of the day it had moved to 4.24 and now 4.26. 2/10 treasury spread jumped 6 bps to 258. Red/gold pack spread was up 6.75 to 283.
–Option flows seemed to mainly be exit trades, Buyer of 25k EDH2 9962c for 6 and a seller of about 20k E2Z 9837c (in keepeing with steepening theme).
–During yesterday’s session there was a report that a debt agreement had been reached with $1.5 trillion in spending cuts, however, this is part of a fallback plan in case the two sides can’t come to an agreement. Both stocks and bonds trended lower afterwards, which may portend direction in larger magnitude if a debt agreement fizzles. If both stocks and bonds begin to decline in earnest, the Fed will be in a bind… I bought some August bond puts yesterday, which expire in one week on the same day that some feel is a deadline for debt negotiations.
–EBA (European Banking Authority) stress tests results to be released starting this afternoon, though Bloomberg reports that they were unwilling to test for a Greek default that many find inevitable.
–July midcurves expire today.
–News today includes CPI expected -0.2 with Core +0.2. Empire State expected 8.0 from -7.8. Industrial Production +0.4 with Capacity 76.9. Consumer Sentiment 71 from 71.5.
July 14. Now it’s getting serious.
July 14. Now it’s getting serious. No…not that Moodys put the US rating on review because of debt ceiling problems (following China’s Dagong), but much, much worse. From WSJ: “More than 300 bars and liquor stores in Minnesota can’t buy alcohol to sell to consumers because their $20 alcohol-purchasing licenses have expired, a casualty of the July 1 shutdown.” Now there’s a fiscal CRISIS.
— Bernanke spoke (prepared to respond if economy worsens) and gold soared to a new high. Curve flattened with 2/10 treasury spread edging to a new low of 252. Even with ten year yield sub 3%, demand at the auction was robust. 30-year bonds sold today.
–There was heavy buying of TY calls on the day. Block trade of TYU 124.5 calls for 119 (23k), though total volume in the strike was only 35k and open interest up 3500. TYQ 126.5 call were bought in the pit covered mostly at 6, open interest fell in the strike by 12570. TYU1 futures OI up 49k.
–Debt negotiations seem to have taken a turn for the worse as Obama insisted he won’t accept a short term debt ceiling measure. The only market that seems to care is gold. Credit concerns are not being reflected in higher rates. If anything, the market is taking to heart something mentioned by Bernanke, that gov’t at all levels is contracting which is negative for GDP.
–News today includes PPI expected -0.3% and +0.2% Core. Retail Sales expected +0.0. Jobless Claims 405k (possible below 400?) –From Bernanke’s speech: “Households report that they have little confidence in the durability of the recovery and about their own income prospects. Moreover, the ongoing weakness in home values is holding down household wealth and weighing on consumer sentiment.
On the positive side, household debt burdens are declining, delinquency rates on credit card and auto loans are down significantly, and the number of homeowners missing a mortgage payment for the first time is decreasing.”
July 13, 2011.
July 13, 2011. Gold soared $23 yesterday as FOMC minutes suggested some members were open to QE3. Up another $9 this morning and over $1570, GCQ nearing new high. Oil had big bounce from lower open and was up 215 late. Grains were higher as well after a lower opening, with notable call spread buying in Dec Corn. Also from the Fed minutes: Europe could cause strains. Not an hour later Moody’s downgraded Ireland to junk.
–Treasury yields continued to edge lower in front of Bernanke’s semi-annual congressional testimony which begins today.
–Dec/March eurodollar spread settled at new low of 3 bps. Curve was flatter with 2/10 nearing a new low for this year (according to my marks). I closed it at 254 with this year’s low at 253…range so far this year has been about 30 bps from 253 to 283. Red/gold pack spread was also lower by 3 bps to 275.5. Year’s range has been wider, from 256 to 301. The fact that the euro$ curve remains relatively steeper is a reflection of flight to quality in treasuries, though at this type of spread I might be tempted to buy 2/10 and sell red/gold.
–Ten year auction today, bonds tomorrow.
–BAC (Bank of America) and MS (Morgan Stanley) both made new lows for the year yesterday.
July 11.
July 11. Incredibly bad employment report sent yield plunging, with tens back down to 3.01% (-14 bps) in spite of this week’s upcoming auctions in 3’s, tens, bonds (T, W, Th). There was size selling of TYU puts Friday after the data: 20k 119p, 25k 120p and 20k 122p…looks like exits, open int -13k, -7200, -6300.
–Bernanke’s semiannual testimony before Congress begins Wednesday. FOMC minutes on Tuesday.
–In spite of what appears to have been a market caught leaning the entirely wrong way (in interest rates), open interest in eurodollar and all treasury futures had increases according to prelims. For example EDZ12 OI rose 38k and EDU13 was up 21k.
–Stocks were lower on the day, but had a nice bounce from the lowest levels and still haven’t breached lows set on the surprise Portugal downgrade. However, the ECB has set an emergency meeting for Monday to try to contain spillover contagion to Italy. Focus this week will continue to be european problems and debt ceiling/budget negotiations in the US. China could also have an impact, as inflation was higher than expected, +6.4% in June, and the trade surplus grew as import growth slowed.
–While a lot of recent data has been soft, I have a hard time believing it is as bad as Friday’s report suggests. For now the financial landscape remains fragile.
July 8. Interest rate futures were slammed on the ADP report…
July 8. Interest rate futures were slammed on the ADP report at 157k vs 70k expected. Ten year note rose 6 bps to 3.15.
–Today’s employment report has bonds looking vulnerable to higher rates. Prior to yesterday, consensus for NFP was 105k, but DB moved their estimate up to 175 and Goldman to 125 with rate at 9.0%. At this point, sub-110k should provide a small relief rally, but given auctions next week a high number (like DB est) should cause tens to at least revisit 3.21.
–While green eurodollars closed over 10 bps lower, there is still a buyer of E2U 9850/9875/9900c fly for 4.0, adding to position. There is still an open question as to whether the soft economic data in May were transitory due to supply chain disruptions, or something more structural.
–Not much drama associated with ECB rate hike. The ECB decision to accept Portugal’s debt as collateral appears to have alleviated concern of a deeper crisis for now.
July 7.
July 7. Interest rate futures reverted partially back into panic mode, with near contracts moving lower and backs closing higher. EDZ1 closed -2, EDZ2 +3.5 and EDZ3 +6.0. Ten year yield had been at 2.91 at the height of european concern, jumped to 3.20 on Tuesday, and fell back to 3.09 yesterday. There was heavy buying of calls on greens. Green pack settled up 6. TYU 123 straddle opened trading 242, rallied up to 249 and settled 247. There was a buyer of (only 6k) EDU1 9850p for 0.75, a bit of a reach (these puts are being accumulated, open interest over 100k). Gold also reflected paper currency concerns, and is back to the middle of 1480/1560 range. While some financial markets are pricing stress, stocks are remaining well bid. There are reports that Obama is close to proposing cuts in Social Security and Medicare as part of a package to get the debt limit raised which would be a structurally positive development.
–The American Bankers Association reported that consumer delinquencies had a slight uptick in Q1, which I find surprising given relatively strong econ growth in Q1. Crude oil continues to bounce back from SPR release, up about $5-6 bbl from lows made at the end of June.
–Today’s news includes ECB, Jobless Claims expected 420k and ADP report.
July 5. Ten year note yield rose another 4 bps to 3.20 on Friday.
July 5. Ten year note yield rose another 4 bps to 3.20 on Friday. Calendar spreads in eurodollars all made new highs, with most one-year spreads having bounced 20-30 bps over the past 2 weeks.
–S&P warned that the Greek bond rollover plan may still be deemed a default. I think the following quote is from the Daily Mail…”Incredibly, the average salary on Greece’s railways is £60,000, which includes cleaners and track workers – treble the earnings of the average private sector employee here.The overground rail network is as big a racket as the EU-funded underground. While its annual income is only £80 million from ticket sales, the wage bill is more than £500m a year — prompting one Greek politician to famously remark that it would be cheaper to put all the commuters into private taxis.”
–When I first read that the NY Fed was suspending sales of Maiden Lane assets related to AIG, I didn’t think it was such a big deal; mostly I thought it was sign of fragility in markets. However, spreads related to these types of risky assets rallied on the sale suspension, and I suspect some of the sell off in treasuries was a consequence spread unwinding.
–Factory Orders expected +1.0%.
July 1. The curve continued to steepen Thursday…
July 1. The curve continued to steepen Thursday, with 2/10 up 6 bps to 270 and red/gold pack spread up nearly 10 to 284. Just last week Tens had yielded as low as 2.91%, now 3.16%, up another 5 bps yesterday. This move, and the associated powerful rally in stocks, has been dramatic, but nothing like Corn yesterday, which fell over 10% on an increased acreage report. CZ from 650 1/2 to 583! In a world of hedge funds trading across asset classes, those that were on the wrong side of grains may find themselves forced to liquidate unrelated products.
–News today includes ISM expected 52 from 53.5, though Chicago ISM was much stronger than expected at 61.1 (part of the catalyst for yesterday’s sell off).
–Geithner considering leaving (finally). NY Fed halts Maiden Lane (AIG) asset sales. This last item underscores fragility in the system, or at least the notion that everything is ok as long as bad assets are tucked away in a portfolio and not really marked. Sort of like bank owned homes…the market couldn’t handle the flood if all released.
–Municipal problems: MN shut down over budget impasse. Now that Rahm Emanuel actually has a budget to adhere to as mayor of Chicago, he is threatening to fire 625 city workers if unions don’t make concessions. CA hiked internet tax and Amazon says adios. IL still faces loss of business due to recently hiked taxes.
July 1. The curve continued to steepen Thursday…
July 1. The curve continued to steepen Thursday, with 2/10 up 6 bps to 270 and red/gold pack spread up nearly 10 to 284. Just last week Tens had yielded as low as 2.91%, now 3.16%, up another 5 bps yesterday. This move, and the associated powerful rally in stocks, has been dramatic, but nothing like Corn yesterday, which fell over 10% on an increased acreage report. CZ from 650 1/2 to 583! In a world of hedge funds trading across asset classes, those that were on the wrong side of grains may find themselves forced to liquidate unrelated products.
–News today includes ISM expected 52 from 53.5, though Chicago ISM was much stronger than expected at 61.1 (part of the catalyst for yesterday’s sell off).
–Geithner considering leaving (finally). NY Fed halts Maiden Lane (AIG) asset sales. This last item underscores fragility in the system, or at least the notion that everything is ok as long as bad assets are tucked away in a portfolio and not really marked. Sort of like bank owned homes…the market couldn’t handle the flood if all released.
–Municipal problems: MN shut down over budget impasse. Now that Rahm Emanuel actually has a budget to adhere to as mayor of Chicago, he is threatening to fire 625 city workers if unions don’t make concessions. CA hiked internet tax and Amazon says adios. IL still faces loss of business due to recently hiked taxes.
June 30. Just a few thoughts…
June 30. Just a few thoughts… US treasury yields continue to surge, with ten year yield up 7 bps to 3.11…was just 2.91 a few days ago. Mediocre seven year auction saw a brief dip, but damage was contained, leading me to conclude that some consolidation should occur here or at slightly lower yields going into the holiday weekend. Treasury vol was hit, with atm TYU straddle moving from 3-03 to 2-56. There was a seller of a few k TYU 121/126 strangles at 107, etc.
–Greek austerity vote passed, but at what price? And what long term consequence…probably just a delay of inevitable. Gold jumped over $10 and crude surged back to around 95, having just been around 90 after the strategic reserve release…just shows that short term “relief” can turn on a dime, (or on a dollar in these inflationary times).
–Obama’s press conference highlighted class warfare…corporate jets, fat cats, millionaires….is that good strategy? Especially in these turbulent times in europe? Might as well just say ‘why don’t we kill them and take their money and land,’ like when Zimbabwe confiscated farms and went from being the breadbasket of Africa to subsistence and poverty. While I personally agree that a temporary tax increase is ok, it can be framed differently. Sort of ironic that Goldman just announced plans to lay off 230 people in NYC due to econ conditions. Successful companies hire people..it can’t just be gov’t, otherwise you wind up like Greece.
