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May 3, 2022

–Fives, tens and bonds all ended above 3% on Monday, with 10s up 12 bps to 3.006%.  The curve steepened with the 2y note up only 3.7 to 2.733%.  On the eurodollar strip reds were down 7.125, greens -11, blues -12.375 and golds -14.875 (new lows for the move in the back end of the curve).  The big story is that REAL yields exploded higher.  For example, the ten-yr inflation indexed note rose 20 bps from -3.7 to +16.7.  In a general sense, real yields that are negative are expansionary; a move to more restrictive real yields is disinflationary and indeed gold was crushed by $50/oz.  It’s around 1850 this morning, down over 125 in two weeks.  As can be seen from the attached chart, the real yield as expressed by the ten-yr tip has been negative since covid.  A move to positive is possibly the start of big change in sentiment, indicating that the Fed will carry through on policies to stifle growth and inflation. 

–RBA (Australia) raised the cash rate by a quarter percent from 0.10 to 0.35 to withdraw “…some of the extraordinary monetary support.”

–The treasury announced new borrowing estimates.  For the Apri-June period, Treasury expects to pay down $26 billion.  “The borrowing estimate is $92b lower than announced in January 2022, primarily due to an increase in receipts, partially offset by increases in outlays…”  This small change in supply is pretty meaningless against the backdrop of balance sheet reduction.  In the bigger picture, higher yields and a decline in forward expectations of inflation will draw capital to bonds.

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Posted on May 3, 2022 at 4:48 am by alexmanzara · Permalink
In: Eurodollar Options

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