Sept 13. Curve shows signs of life
–Yields firmed Tuesday, continuing the reversal from Friday’s high. The ten year yield rose 4.7 bps to 216.9, a fairly large swing from Friday’s low of 201.5. The area from 199 to 201 takes on added importance as it held on a yield basis, corresponding to the halfway point between post-brexit low and post-election high. The 2/10 treasury spread rose 2.7 bps to 83.4, which is above the initial low set after the June FOMC hike of 79.0. However, the red/gold euro$ pack spread, while also up 2.25 bps yesterday, is still below the post-FOMC June low of 54. I favor long curve trades, but would like to see some confirmation from the ED curve. As the MacroTourist pointed out yesterday, September tends to be a steepening month on seasonal basis (I suspect that has something to do with generally weak equities on the same seasonal pattern…)
–Today’s news includes PPI, expected +0.3 with Core +0.2. Core yoy expected 2.1. CPI is tomorrow. Because a new Apple phone is being released, and because CPI has been significantly impacted (negatively) by a price drop in telephone services, I looked at the BLS site and found that telephone services are 2.465% of CPI and that wireless is 70% of that. Obviously, there’s been interest in the topic because the page was updated just last month. https://www.bls.gov/cpi/factsheet-telephone-services.htm
–There was continued premium selling yesterday, for example 8k each sold of EDM8 9850 straddle at 22.5 and 8k 3EV 9800 straddle at 16.0 (settled 16.5). On a settlement basis EDZ20 has only moved 14.5 bps from 9795.5 to 9810 in the last month (straddle sale looks good) but on a high to low basis, the last three sessions have seen a range of 17.5 bps from 9815 to 9798 (straddle sale looks a little less good).
–Mnuchin said yesterday that Trump may work with Democrats on infrastructure, an additional spur to government spending on rebuilding from the storms. The budget ceiling going to have to raised by a LOT! 30 year auction today.
