Safe Havens

March 8, 2021

–“Hey don’t worry boss, I bought bonds AND gold to cushion any sort of unlikely sell off in stocks.”  As of this writing, USM is 156-16, -23, a new low.  GCJ is 1688.40, -10.1, a new low.  NQH is 12431, down 233, but just above last week’s lows.  Not too long ago, as bond yields hovered at all-time lows, the allure of holding fixed income for safety diminished significantly.  Some portfolios chose gold as an alternative port in the storm.  Others just used cash-rich big tech as their safe haven asset.  However, price action like this morning’s might change sentiment from TINA (there is no alternative) to WASH [OUT] (Where Are Safe Havens?).  The rise in yields and concurrent shift to an inflationary mindset make many asset classes vulnerable. 

–The passage of the $1.9 trillion spending bill might foster another price boost.  Oil, which was already in a solid uptrend, will likely be underpinned by yesterday’s attacks on Saudi oil infrastructure.  This, at the same time Netanyahu assured Harris that Israel would never allow Iran to have nukes, and the Biden administration’s recalibration of policy toward KSA ushers in uncertainty with regard to policy responses in the Middle East, (and everywhere else).  The problem is not Dr Seuss. We’re not in Solla Sollew. “And I learned that are troubles/Of more than one kind/Some come from ahead/ And some come from behind.”

–Sort of leaves physical supply of necessary commodities as the last true safety play.  Which, of course, encourages hoarding.  

–Many curve measures closed at new highs Friday, with vol snapping back.  2/10 ended 141.5, a new high up 0.6 on the day.  Red/gold euro$ pack spread closed 157.125 also a new high.  The peak one-year eurodollar calendar is EDH3/EDH4 which straddles the libor end date, at 69 bps.  There have been times when one-year calendars have peaked well over 200 bps, but these were periods of the Fed either slashing or being expected to slash funding rates from much higher nominal rate regimes. However, we’ll see triple digit one-year calendars before long.  

Posted on March 8, 2021 at 5:25 am by alexmanzara · Permalink
In: Eurodollar Options

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