Sept 2. Tens uncomfortable under 2.5%
ADP data which was weaker than expected was shrugged off by the market, while stronger than expected ISM sent treasuries hurtling lower, though they fought back from worst levels of the day. Stocks exploded higher.
–Reflecting the difference of thought within the Fed, Dallas’ Fisher said it’s not more QE that’s needed but a reduction of uncertainty and fiscal initiatives. “Ball is in the fiscal court.”
–Most treasury trades still have bullish bias…call spread buying and put selling. There was though a large buyer of TYX 120/122/124 p fly for 20.
–However, the market doesn’t appear comfortable taking tens much below 2.5%. I suppose another bad employment report tomorrow could change that, though I think risk is shifting toward higher rates. There are many economists (Krugman et al) who argue for significant new stimulus programs because the market allows the US to endlessly fund at low rates. It was only in April that tens hit 4%. The uncertainty that pervades the economy in some ways argues for higher, not lower, rates out the curve.
–Job Claims expected 470k. Productivity expected -1.9% with Unit Labor Costs +1.2% and Fact Orders expected +0.3%.
