Sept 12. “I’m prayed up…”

Thank you to TheMacroTourist Kevin Muir for mention in his post yesterday
Also thanks to Patrick Rooney of Trading Technologies for mention on his twitter feed.
My posts are generally a brief summary of the previous day’s action.  I occasionally highlight an interesting trade, sometimes veer into off-market topics.  The intent is to provide a few notes of importance early in the day.  Contact info
–Is supply finally weighing on treasuries?  Ten year auction today; ten year yield up 4.4 bps yesterday to 297.9.  ZH notes, “ the first 11 months of the fiscal year, the deficit was $895 billion, $222 billion or 39% more than the previous year. This is largely due to outlays which have climbed 7% while revenue rose a mere 1%.”  Hurricane Florence likely to put additional pressure on government spending, and interest payments as a % of the budget are continuing to increase (new high for example in the 2 year note yield, just under 2.75%, and new recent lows in EDM9 thru EDH0).  Higher yields and higher deficits create a negative spiral…like a hurricane.  (AP)  “I’m prayed up and as ready as I can get,” Steven Hendrick said as he filled up gasoline cans near Conway, South Carolina.
–All near euro$ calendars made new highs with expiring EDU8/EDU9 out to 69.5 and EDZ8/EDZ9 up 3.5 bps to 43.5.  While implied vol remains subdued, the market is ratcheting up odds for a slightly more aggressive Fed.  For example, Nov/Jan Fed fund spread (which isolates the Dec FOMC) rose 1.5 bps to 20 indicating 80% odds of a Dec hike, and Feb/Apr FF (for the March FOMC) rose 1 bp to 16.0.  Jan/Feb was unchanged at 1.5 (Jan 30 FOMC), but we may be getting to a point where non-quarterly FOMC meetings see a bit more play.
–Back end of curve flatter.  Red/gold euro$ pack spread (2nd to 5th years) hit a new low of -2 bps, nearly 50 bps off the high of the year which was posted in February at 42.5.  Reds to greens closed at -1.0.  The back end of the dollar curve refuses to buy into a scenario of sustained growth.
–While US stocks are bulletproof, new lows today in Shanghai Comp and Hang Seng.  “There are deep and complex changes underway in the international situation, the politics of force, unilateral approaches and protectionism are rearing their head,” Xi said at the Eastern Economic Forum on Russia’s Pacific coast. (Reuters).  Doesn’t sound like a guy interested in accumulating more US treasuries…
Posted on September 12, 2018 at 5:30 am by alexmanzara · Permalink
In: Eurodollar Options

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