Pay as you go

April 2, 2020

–Shortly after the Saudi/Russia spat which led to a plunge in oil prices I wrote that the US would/should buy oil for the SPR.  Well it wasn’t the US, it’s China that is buying to boost reserves, leading to a pop in prices this morning with CLK0 above 22.  The other big news is that the Fed excluded treasuries from bank capital rules, which should free up balance sheet for greater lending.  This morning ESM0 has recovered about 1/3rd of yesterday’s 122 point plunge. 

–There was a somewhat informative note from Edmund’s about the length of new car loans in March 2020, now exceeding 70 months:  From March 2019 to March 2020 the length of the average loan went from 69.6 to 70.6 months.  The amount financed went from  $31962 to $34052.  However, the rate went from 6.4% to 5.8%, so the monthly payment only rose to $573/month from $553/month, even with a lower initial down payment.  Several things stand out.  First, the average SUV driver is probably saving the increase of $20 a month in gasoline.  Second, $570 is a pretty large monthly nut in any case.  Third, the US finance system of ‘pay-as-you-go’ displays its insidious side at a time like this…the vast majority of the population has no equity or wealth, just monthly payments for ‘things’, the debt servicing on which now can’t be paid, even at lower rates.  The Fed can’t fix that; lower rates simply perpetuate the illusion of wealth.

–Yesterday 3m libor was 1.436% and EDJ0 settled 98.785 or 1.215% a difference of 22 bps.  This morning EDJ is unch’d but EDM0 is up another bp to 99.46.  April/June spread continues to make new lows at -67 bps.  The fact that EDM is just 54 bps indicates market confidence that the Fed will get libor down.  Yields fell yesterday and the curve flattened, with twos up 1 bp at 23 bps and tens down 5.5 at 63.2 bps.  

–Jobless Claims this morning.  Can we get a double from last week’s 3.2 million?  Spain said its monthly unemployment increase was the greatest ever.

Posted on April 2, 2020 at 5:36 am by alexmanzara · Permalink
In: Eurodollar Options

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