The big data’s out, let’s sell some bonds

Nov 4, 2019

–New highs in stocks this Monday morning due to (I guess I’ll just chant this with everyone else) optimism on a China/US trade deal.  Of course, central bank support continues to play a role, but that’s less apparent in the bond market with auctions of 3, 10 and 30 year treasuries this week totaling $84 billion.  On Friday the ten year yield rose 4.1 bps to 1.728% with the curve flattening slightly.  2/10 closed 16.6 bps.  Better than expected payroll data with NFP +128k and Private payrolls +131k along with previous upward revisions should have perhaps registered stronger selling in bonds but other data still casts doubt on economic strength with ISM Mfg 48.3.  

–Implied vol hammered Friday.  Midcurve straddles lost 2-3 bps across the board.  For example 0EZ 9850^ settled at 19 from 21.5 on Thursday.  Dec atm TY straddle went from 1’07 to 0’61 with three weeks to go.  Future rate cuts are being priced as less and less likely. Nov/Jan FF spread settled -5.5.  Jan20/Jan21 FF spread settled -31.5, indicating little more than one cut over next year. 

–Post on ZH notes that freight rail traffic had a large decline into the end of October.  This link from the American Ass’n of Railroads shows that 2019 is weaker than the past three years.

Rail Traffic Data – Association of American RailroadsGauging U.S. Economic Activity Through Rail Traffic Data Since demand for rail service arises as a result of demand elsewhere in the economy for the products that railroads haul, rail traffic is a useful gauge of broader economic activity, both for specific industries and for the economy as a whole. A sample of current weekly, […]

 –News today includes Factory Orders expected -0.5% and Total Vehicle Sales.  

Posted on November 4, 2019 at 4:30 am by alexmanzara · Permalink
In: Eurodollar Options

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