Sept 14. Increase in treasury supply to eventually impact rates

–Treasuries remain heavy with tens +2.5 bps to 219.4, more than 18 bps higher than Friday’s low.  Often there has been a rally after the treasury completes the third leg of its auction schedule… not so yesterday, even though PPI was slightly softer than expected.  Today’s news includes CPI, expected +0.3 with Core +0.2 and yoy Core +1.6%.   Jobless Claims 300k, but irrelevant in the wake of the storms.  China’s data today weaker than forecast.  (RTRS) “Fixed-asset investment, a key growth driver for the world’s second-largest economy, grew 7.8 percent in January-August from a year earlier, the weakest pace since December 1999 and cooling from 8.3 percent in January-July.

The main drag appeared to be a slowdown in infrastructure investment due to a significant drop-off in government fiscal spending over the past two months, analysts said.

China frontloaded fiscal spending this year to produce rosy growth ahead of the once-in-five-years Communist Party Congress next month…”

–Premium sales continue.  Notably yesterday a sale of 2500 midcurve Nov straddles (0EX 9837, 2EX 9812, 3EX 9800) at 57.5.  Settled 58.5.  Treasury vol essentially unchanged.  TYV 126.5 straddle settled 39 ref 126-145.  October options expire one week from tomorrow.  For downside consider TYV 126p, which was 5.6 bps out of the money at yesterday’s close, which equates the strike to 2.25% given a parallel shift in curve.  Settled 9/64’s with 27 delta.  Besides today’s inflation data, next week we have the FOMC.  Given the recent rallies in TY after Fed HIKES, is it reasonable to be short as the Fed stays on hold?  This is NOT a recommendation, just an observation.
–Not only will storm spending add to the deficit, in an interview with the AP yesterday Speaker Ryan backed off the pledge that any tax plan would be ‘revenue neutral’.  An increase in deficits and gov’t spending is likely to become a larger issue for the markets going forward.
Posted on September 14, 2017 at 5:24 am by alex · Permalink
In: Eurodollar Options

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