The year of Unintended Consequences

October 8. 2020

–Bear steepener yesterday.  All curve measures made new highs, 2/10 at 62.8, up 3.5 on the day (double top this year 69/70).  5/30 at 124.8, up 2.2.  Red/gold pack spread 51.75, up 3.875.  The ten year yield rose 4.6 yesterday’s auction and continued strength of stocks.

–On the euro$ curve, EDZ0/EDZ1 settled at 0.0, up 1.5 on the day; there are no one-year calendars that are now negative.  The Fed appears to have convinced the markets that a negative FF target is not going to happen.  

–The recent trend is that “breakouts” only last a day or two, and then reverse course. However, this appears to be a fairly broad based move in support of a steeper curve.  All euro$ contracts out to March 2026 are below 1%, with EDH6 9902 or 98 bps.  The third purple, or EDM’26, is the first contract with a 98 handle, at 9896.  Borrowing 6 years forward at 1%.  Think about that for a minute.

–Corn and beans at new highs this morning.  I always thought that the Arab Spring was partially the result of food prices that had been jacked up to unbearable levels, and that those prices were, in part, boosted by the Fed’s initial QE program.  Perhaps that’s a tenuous connection at best.  My only point is that the year 2020 has been packed with policy decisions of all sorts that can lead to Unintended Consequences.

below is chart of DBA (the grain etf)

Posted on October 8, 2020 at 5:38 am by alexmanzara · Permalink
In: Eurodollar Options

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