Yields on 2s and 5s nearly equal. 7y auction today

October 29, 2024
******************
–Yields rose further with relentless put buying on TY.  10y yield rose 4.6 bps to 4.276%.  Curve had a slight flattening bias as 2’s and 5’s were auctioned (both tailed, 0.8 bp on 2y at 4.130% and 1.6 bp on 5y to 4.138%).  New recent low on 5/30 spread at 42 (4.108/4.528).  I’ve included a chart of 2y/5y spread as yields are now close to equal.  

–The 2y yield plunged from the end of June going into the Sept FOMC, from 4.73 to 3.54 (-119 bps).  In the same period 5s went from 4.25 to 3.47 (-78 bps).  Even as yields bounced since the FOMC, with both 2s and 5s up about 60 bps, the spread has steepened toward zero, as can be seen from yesterday’s auction yields.  It would make sense to me that the 2/5 spread would have flattened post-FOMC with the yield run-up, but so far that hasn’t occurred.   SOFR prices and straddles on this part of curve:
SFRH6 9642.0   0QH5 9637.5^ 64.5
SFRH7 9637.5   2QH5 9637.5^ 61.5
SFRH8 9633.0   3QH5 9637.5^ 58.5  (straddle spreads have tightened over past couple of weeks)

–Large new buying in TY puts yesterday (TYZ4 settled 110-225, -11.5)
+30k TYZ4 109.5p 30 to 31; 35s
+30k TYZ4 110.0p 44 to 48; 46s 
+25k TY wk2 109/108.25ps 8, 7s
+10k TY wk5 WED 111.5p 50 (expires tomorrow)

–News today includes: JOLTS, Consumer Confidence, 7 year auction.  
–Alphabet earnings today (also MCD, AMD, Visa).
META and MSFT tomorrow
AAPL and AMZN Thursday

Treasury yields higher as geopolitical events fail to awaken safety fears

October 28, 2024
******************
–As mentioned in weekend note, Friday started with a buy of 50k TY wk1 MONDAY (today expiry) 111.75 call for 3.  Likely same player who had bought 50k 111.75 put which expired Friday 44/64s in-the-money, with a settle of 111-02 in TYZ4.  Gains continue this morning with TY at a new low of 110-18+ (last at 110-24).  Throughout the day Friday there was heavy accumulation otm puts expiring this Friday (NFP day):

Here are the buys, all TY Nov wk1 FRI puts.  These puts all expire on Nov 1, payrolls day.

+20k 109.25p 2 
+15k 109.25p 3   Settled 4, open interest +37k to 44.6k
+12k 109.00p 2  
+20k 109.00p 3   Settled 3, open interest +40k to 48k
+20k 108.75p 3   Settled 3, open interest +20k to 21k

–Weekend events: Israel’s military strikes avoid Iran’s energy infrastructure, so CLZ4 is at a new low for October, down around 3.50 at 68.30.  LDP lost its majority in Japanese elections, so the yen is making a new low going into the BOJ meeting at the end of the week, $/yen last at 153.22.  

–Front end of SOFR strip down just 1-2, reds, -3.5 with more deferred contracts -4 to -5.  

–Attached chart shows U of Mich 1-yr inflation expectations, released Friday at 2.7%, pretty much in the same area it was from 2015 to the end of 2019.  

–Today includes 2 & 5 year auctions, followed by 7s tomorrow.

The Playbook

October 27, 2024
******************

Friday began with a buyer of 50k TY wk1 MONDAY 111.75c for 3.  These calls expire Monday, 28-Oct.  [Symbol on BBG for Mon options is VBYA; VBYZ4 <commdty> OMON.  On CME Daily Bulletin VYO]

This was probably a hedge for an Israel response to Iran that could spin out of control.  Note too, that on Monday, 10/22, there was a buyer of 50k TYX4 111.75p for 26 ref 111-17.  These options expired Friday and were 44/64s in-the-money against TYZ4 settle of 111-02. Likely the same player.

But I want to focus a bit more on otm put buys which occurred Friday, coincidentally following comments Tuesday by Paul Tudor Jones concerning unsustainable US budget deficits (in an interview with CNBC’s Andrew Ross Sorkin):

Financial crises percolate for years. But they blow up in weeks. That’s kind of the history of them, right.

https://www.youtube.com/watch?v=49-2-NWoiLI

Here are the buys, all TY Nov wk1 FRI puts.  These puts all expire on Nov 1, payrolls day.

+20k 109.25p 2 
+15k 109.25p 3   Settled 4, open interest +37k to 44.6k
+12k 109.00p 2  
+20k 109.00p 3   Settled 3, open interest +40k to 48k
+20k 108.75p 3   Settled 3, open interest +20k to 21k

Given a settle in TYZ4 of 111-02 and current DV01 in the contract of $64.20, the 109 strike is about 32 bps away.  Last week, cash tens rose 15.7 bps to end at 4.23% (at futures settlement).  Also last week, on Wednesday, there was a buyer of 30k USZ4 109p, 10k each at 10,11 and 12.  USZ4 settled Wednesday at 118-01, and on Friday at 118-09; USZ4 109p settled 9 on Friday.  Roughly 7.7 bps per point in USZ4 contract.

Another comment by PTJ:

I think all roads lead to inflation… I’m long gold. I’m long bitcoin. I think commodities are so ridiculously under-owned, so I’m long commodities… The playbook to get out of this is that you inflate your way out.

Everyone knows the “inflate your way out of it” play.  It’s another ploy that can get out of hand.  But take a look at the chart below.  It’s the Bloomberg Commodity Index since the turn of the century.  Same now as it was then.  But there are several positive bursts over that timeline showing annual gains of over 50%.  Could that happen again?

Another item in the “Could it happen again?” playbook: In looking at periods when 2/10 spread was inverted, the last three times coming out of the inversion the spread rallied over 250 bps: 1990 to 1992, end of 2000 to 2003 and 2007 to 2010.  Of course, that typically occurs because of a plunge in the 2y yield as FF are cut. From April 1990 to September 1992, 2s went from nearly 9% to 4%.  In 2000, from 6.7% in May to 2% by November 2002, and in June of 2007 from 4.90% to 0.75% by December 2008.  Will we see the same sort of decline from April 2024 high of 5%?  [2/10 chart below. A bit hard to see but peak is 2.84 in Jan’11]

It’s a big week, capped by the Employment report (and Mfg ISM) on Friday.  Election and FOMC in the following week.

Monday: 2 & 5 year auctions.  Treasury Refunding Estimates.

Tuesday: JOLTS, Consumer Confidence and 7yr auction.

Wednesday: ADP and Q3 GDP (estimated 3.0).  Atlanta Fed GDP Now estimate is 3.3 and the NY Fed Nowcast is 2.91.
Treasury Refunding Announcement. As an aside, it was one year ago when Treasury loaded issuance into the front-end, sparking a Q4 rally from 4.9 to 3.8 in the 10y, coupled with a blistering 14% surge in SPX.

Thursday: PCE Prices, expected 0.2 with Core 0.3 from 0.1. YOY 2.1 and Core 2.6. 
Employment Cost Index expected 0.9 from 0.9.  Jobless Claims 232k.  Chgo PMI 47.0 from 46.6
Friday: NFP expected 110k (impacted by Boeing strike). ISM 47.6 from 47.2.

OTHER THOUGHTS

I ROUGHLY track FV vs US DV01 to vol ratios.  Typically, the DV01 ratio is 3 to 3.4, currently around 3.1 ($42.40 in FVZ vs $130.00 in USZ). Vols are 5.65 (FV) and 15.85 (US); ratio 2.8.  Generally the ratio of ratios is around 0.7 to 0.8.  I marked Friday at 0.92.  If it were 1, that would mean that the DV01 ratio was exactly equal to the vol ratio.  Very rarely occurs as 5’s are more volatile in terms of yield.  My only point here is that 30y vol seems a bit expensive relative to 5y, especially in context of 5/30 yield spread.  I don’t have any specific trade to do… just a function of “term premium” expansion on the long end. My only interpretation is that the long-end is vulnerable to a rapid move to higher yields.

	10/18/2024	10/25/2024	chg
UST 2Y	395.0	409.2	14.2	wi 408.4
UST 5Y	387.5	405.1	17.6	wi 405.3
UST 10Y	407.3	423.0	15.7
UST 30Y	438.0	449.9	11.9
GERM 2Y	210.8	211.7	0.9
GERM 10Y	218.3	229.1	10.8
JPN 20Y	174.9	177.9	3.0
CHINA 10Y	212.3	215.8	3.5
SOFR Z4/Z5	-99.0	-81.0	18.0
SOFR Z5/Z6	-3.0	-0.5	2.5
SOFR Z6/Z7	7.5	4.5	-3.0
EUR	108.70	107.99	-0.71
CRUDE (CLZ4)	68.69	71.78	3.09
SPX	5864.67	5808.12	-56.55	-1.0%
VIX	18.03	20.33	2.30

The price is right. For today, anyway.

October 25, 2024
******************
–Yields eased a bit, with 10s down 4 bps to 4.20%.  No particular meaning associated with that yield level, though everyone might want to take a toke over the next two weeks for medicinal purposes.  November treasury options expire today.  TYZ4 settled 111-09 and the X4 111.25^ settled 16/64.  Not looking for much action associated with today’s Durables or U of Michigan numbers.  Peak open interest in Nov calls is the 112 strike with 58k open.  On the put side there are 74k open at the 111.25 strike (atm).  

–There was a late block in TYZ options: -16k 109.5p at 26, -9k 110p at 35, +33.5k 114c for 14, -17.5k TYZ4 at 111-07.  Delta was heavy (would have been ~11.5k futures delta neutral), though on Wednesday there was also new long open interest added to the 114c strike.  Yesterday OI was up 39k in the TYZ 114c to 80k.  15 delta option, settled 14/64, it’s the peak point of open interest in TYZ calls.  Though vol has gone bid on the move to higher yields, long 114 calls provide some insurance against something crazy happening, (which seems to occur every other day).  

–FFX4 settled 9535.5, essentially pegging a 25 bp cut at the next meeting (final settle would be 9536.2 on a quarter point ease).  That contract has traded as low as 34 past few days, but there’s little inclination (at this point) to really push for the Fed to stand pat. Current EFFR is 4.83 and FFV4 is right there, at 9517, so a price of 9535.5 might be looked at as a cheap put, BUT, what if there’s another 50?  On the SOFR strip, the lowest quarterly is still front Dec, with SFRZ4 settling 9561.5.  The peak quarterly is SFRH6 at 9651.5.  So 1.25 years apart, yields 90 bps apart, around 4.4% and 3.5%.  If I just saw these prices without the context of the election and international strife, I would think it’s reasonable pricing for a gently slowing economy and decelerating inflation.  In fact, these SOFR prices hew to the last Fed SEP, which projected end-of-2024 FF at 4.4% and end-of-2025 at 3.4%.  The problem is, I can paint scenarios for wildly different outcomes in both directions.

Turnaround Thursday?

October 24, 2024
******************
–Yields pushed a bit higher, punctuated by an aggressive, end-of-day buyer of 30k USZ4 109p for 10, 11 and 12, (10k each).  This 5 delta put was bought just after USZ4 settle at 118-01 with futures around 118-03/04; puts settled 9.  20y auction tailed by 1.7 coming in at 4.59%.  Ten year yield at futures settle was +3.8 bps to 4.24% and 30y +2.1 to 4.513%.  Roll down buyer of TYZ4 114.5/118c 2×1 for 16, adding new longs to the 114c and exiting 118s.  Trade size was 40x20k, 114c added 31k of OI, settled 9 and 2 (16 in pkg).  Shorter dated put buyers in TY.

–SOFR contracts were -5 to -7.5 from SFRM5 to SFRM8.  The 100 wide call spread buyer returned, paying 4 for 40k SFRM5 9775/9875cs, settled 4.0 ref 9620.5.  New recent highs in SFRZ4/H5 at -35.5 (9559/9594.5) and Z4/Z5 at -85.5 (9559/9644.5). 

–Beige Book indicated slow to modest growth; consumer trading down to lower priced products. 

–Stocks were lower and DXY higher, but TSLA’s stronger than expected results seem to have sparked reversals. As of this note, ESZ4 currently +25 at 5862.75.  GCZ4 posted a key reversal: new ath, outside range day, closed lower. (2772.6 H, 2722.1 L, 2729.4s).  Silver nearly the same.  Warning sign on precious metals, but a close above 2773 in GCZ4 would indicate another large leg higher. 

–As mentioned yesterday, treasury vol is surging.  An election note by Harley Bassman, inventor of MOVE index is below.

https://www.convexitymaven.com/wp-content/uploads/2024/10/Convexity-Maven-2024-Election-Special.pdf

–I would just note the following settles for 111 straddles on TYZ4 underlying, which settled 111-01
WED 10/30  0’48
FRI  11/1      1’06
FRI  11/8      1’46

So a spread of 22/64’s for the 2 days from Wednesday to Friday, with Friday 11/1 being the last employment report before the election and PCE released on 10/31
And 40/64’s for the week that captures the election and FOMC

Today:
Job Claims expected 242 from 241
S&P Mfg PMI 47.5 from 47.3
Services 55.0 from 55.2
Composite 53.8 from 54.0
Also New Home Sales and Durable Goods Orders

Moving on up

October 23, 2024
*******************
–Yields continue to push higher with tens +2.5 bps to 4.202%.  Every yield now over 4%.  Two and fives are just over 4%, tens 4.20% and thirties 4.5%.  Ed Bolingbroke of BBG put out a piece yesterday titled, ‘Cost to Hedge Against Treasuries Losses Soars to Highest of 2024’.  Attached I created a chart with 30y (US) bond vol and the MOVE index.  If I remember correctly MOVE is weighted 40% in twos, and 20% each 5s, 10s, 30s.  The salient factor is that vols are reaching new recent highs with the increase in yields, supporting the underlying trend.

–The first FOMC of the new year is January 29.  The Feb 2025 contract is ‘clean’…no meeting.  FFG5 settled 9576 or 4.24%.  Current Fed Effective is 4.83%, a difference of 59 bps.  There are three meetings before Feb…Nov 7, Dec 18 and Jan 29.  While easing expectations have been pared back, there are still at least two 25 bp eases fully priced.  The highest FFG5 settle was only one month ago on Sept 24 at 9631 or 3.69%.  So in a month 55 bps of easing have disappeared. 

–Existing Home Sales this morning.  Beige Book in the afternoon.  20y bond auction, which last went off at 4.039%.  It’s now 4.58%.  

–What fun is it if you can’t talk your own book?  Hi yield ETFs HYG and JNK appear to be forming small head and shoulder tops.  As an indicator of credit stress, spreads to treasuries have been rather tight, i.e. no real sign of tight financial conditions, let alone stress.  Disclosure: I am long puts on JNK, because I think the move in yields, vols, supports an idea of wider spreads.  Also, puts on these ETFs simply have no liquidity, so this is NOT a recommendation, just mentioning as something to watch in terms of general financial conditions. 

From bigcharts.com

Yields powering higher

October 22, 2024
******************

–Yields are climbing.  Yesterday 10’s rose 10.9 bps to 4.182%.  I had mentioned the midway point of this year’s range in the 30y bond, from the April high of 4.81% to the Sept low of 3.93%.  That level is 4.37% and the market had bounced around that area for a few days.  However, late yesterday we popped above the 0.618 retrace of 4.475%.  With a futures settle of 118-22 on USZ4, I marked 30s at 4.487%, and as of this note the futures print 118-10.  

–Flows were biased to the downside.  For example, a buyer of 50k TYX4 111.75p for 26 ref 111-17.  Settled 27 vs 111-165, with open interest up 44k.  Nov options expire Friday.  Somewhat interesting that these could be done at one price, as the delta was around 60, equivalent to 30k TYZ4.  Also a new buyer of 35k 2QZ5 9625/9600p spd for 5.0 to 5.25, settled 5 vs SFRZ5 9654.5. (This is around 5y treasury part of the curve).  

–Dollar was strong.  Maybe not much of a surprise as easing expectations are whittled away in the US.  There was selling in FFX4 at 9534 (settled there).  A cut of 25 should result in a final settle of 9536.2.  SFRZ4 closed down 4 at 9559.5 and SFRH5 down 7 at 9598.  The peak contract on the SOFR curve is SFRM6 at 9658.5.  One month ago on Sept 24, the peak contract was the first red at 9714.  So about 50 bps have oozed out of reds.  Again with respect to DXY, while SFRH5 was down 7, there was a buyer of 50k ERF5 9787.5/9812.5/9837.5 c fly for 2.75 (euribor) against ERH5 9766.0s.  Central banks stepping on different pedals. 

–Kashkari keeps wondering if the neutral rate is higher than he thought.  Logan leaned a bit hawkish and indicated there could be more volatility in funding rates.  Here’s a short snippet from her speech yesterday:

At present, liquidity appears to be more than ample. Reserve balances are around $3.2 trillion, compared with around $1.7 trillion in early 2020. The economy and financial system have grown, and the dash for cash at the start of the pandemic as well as the banking stresses in March 2023 may have led banks to increase their demand for liquidity. Still, I think it’s unlikely banks’ liquidity demand has nearly doubled in half a decade.

The Fed is working toward a regime of “ample” liquidity as opposed to excess liquidity.  Obviously there could be an undershoot of ample.  I thought the comment that she finds it unlikely that banks’ liquidity demands could double in five years a bit odd.  Go buy an Egg McMuffin.  Or, look at SPX.  Five years ago, it was 3000, now just shy of 6000. A lot of doubles in the past five years…

Gold bugs

Oct 21, 2024
*************

–Rate futures were little changed last week. 2s, 5s, 10s and 30s were within 1.5 bps of the previous Friday’s close (at futures settlement time).  On Friday, the 10y yield was -2.2 at 4.073 and the 30y was 4.38, down 1.3 bps.  However, this morning, after having settled 120-08 on Friday, USZ is testing last week’s low, printing 119-18 as of this note.  The previous week’s low was set Monday on the Columbus Day treasury holiday, at 119-14.  Friday’s low was also 119-18.  The high print of the week was 121-23.  The re-test of lows suggests that level will be broken.  

–While rates have been quiet, precious metals are off to the races with GCZ4 up 20 to a new high 2750 and SIZ4 up another $1 to 34.23.  It was back in 2011 that silver hit $50.   CLZ4 was another big mover last week, falling over $6 bbl to 68.69.  Small bounce this morning, +1.24 to 69.93.   

–FFX4 settled 9535 on Friday, indicating an ease of 25 at the Nov 7 FOMC, which would cause a final settle of 9536.2.  On Friday, SFRH5/H6 settled at a modest new low of -62, down just 0.5 on the day (9605/9667).  SFRZ4/Z5 settled -99 and SFRU4/U5 settled -131.25, so curve roll suggests more pressure on H/H.  As an interesting aside, SFRH5 has sold off to where SFRZ4 was on Sept 25, when Z4 settled  9606 (there had been a block seller of 118k on that day of Z4 at 06.5).  On Sept 25, SFRZ5 was 9710, so the one-yr calendar was -104 as opposed to current level of H/H at -62. (9/25, Z4=9606, Z5=9710.  10/18, H5=9605, H6=9667).

–Leading Indicators this morning expected -0.1.  Lorie Logan (Dallas President, hawkish) speaks 8:55 EST.  

Which Consumer

October 20, 2024- Weekly Comment
***************************************

Does this make sense?  I set the time period as the last twenty years, from 2004 to 2024.  Covers the mortgage bubble, zirp, QE, covid, etc.  In Q2 2004 Household Assets were $64.9T and Liabilities $10.5T.  Currently, Q2 2024, Assets (green) are 185 and Liabilities (red) are 20.7.  So assets up 3x and liabilities up 2x.  Does it seem reasonable?  I guess it does with an aging (old) population.

Let’s look for a second at Home Mortgage Debt Outstanding.  In 2004 it was $7.86T, in 2005 $8.95T, in 2006 $9.95T and in 2007 $10.63T.  Up about a trillion per year.  Which would mean in 2024, 17 years later, about $27T right?  Nope, it’s $13.17T.  Not much higher than the GFC peak in 2007.

As an aside: Federal Debt in 2004, $5.25T and now $30.4T.

So I guess you MUST conclude, a more bigly indebted Federal Gov’t creates wealth. 

Now look at HouseHold (HH) equity in real estate as a percentage of total value:  It’s an astonishing level of 72.7%.  The high since the 1960’s.  It was higher before, but mortgages probably weren’t as prevalent or easy to get then.  This is Fed data.  Once again, I guess an older population owns assets outright.  Everyone else can rent from Potter Blackrock.  It’s Marie Antoinette type stuff.

Above all, one hideous figure grew as familiar as if it had been before the general gaze from the foundations of the world – the figure of the sharp female called La Guillotine.

Dickens knew and wrote about the Fourth Turning with a sweep of literary brilliance long before  Strauss and Howe. It’s why, like so much fluff in our society, the new motto of ‘turn the page’ is a mockery of its own shallowness.  But I digress…

Here’s the chart of HH, Owners’ Equity in Real Estate as a % of HH Real Estate.

The thread of this note was sparked by a post from @KobeissiLetter:
 
The median value of US consumers’ stock holdings spiked to $250,000 in October, the most on record.  
Over the last 12 months, this amount has DOUBLED, according to the U of Mich consumer survey.

In 2010, American’s investments in single stocks, mutual funds and retirement accounts were worth just ~$50,000, or 5 times less.

Now, equities account for 48% of US households’ net worth, the highest since the 2000 Dot-Com bubble peak.  This rally has truly been unprecedented. [chart below]

https://x.com/KobeissiLetter/status/1847318505743356410

When I look at the latest Z.1 report from the Fed, I see ‘HH and nonprofit corporate equities, asset’, as $33.953T as of the end of Q2 (line 15).  Net Worth is around $165T.  So I see the ratio of equities to net worth as 21%.  HH Real Estate is $52.32T.  HH Mortgages $13.17T, so about $39T in RE net worth.  I am not going to quibble with Goldman and U of M, my only point is that we have a Tale of Two Consumers with respect to future economic growth:  

Is it the highly indebted consumer with Credit Card and Education debt that slows things down?  Or the older unlevered consumer, owning equities, t-bills and real estate that powers everything forward?  My belief is that the former group is growing large enough at the margin to topple things, but I have no idea when.

What’s the limitation on Gov’t “increasing” wealth by deficit spending?  It’s the interest expense on the debt.  When is it too much?  When the dollar loses value to alternatives: Gold and Real Estate for example.  When long-dated rates start to ‘inexplicably’ rise.  It feels like the end game is drawing nearer. 

While I am not pulling these threads together to form a strong conclusion, I simply get the feeling that we’re closer to an inflection point.

A couple of interesting links to finish:  The NY Fed is now releasing a new data set: RDE or Reserve Demand Elasticity.
https://www.newyorkfed.org/research/reserve-demand-elasticity/#interactive

The paper describing the need for this is “Tracking Reserve Ampleness is Real Time Using RDE”
“To operate in an ample reserves framework and avoid reserve scarcity, it is therefore important to identify the transition point between abundant and ample reserves.”

Basically, QT can lead to reserves NOT being abundant. And we want reserves to be “ample”.  You better believe the Fed is worried about a funding hiccup with respect to rolling gargantuan debts. 

Tracking Reserve Ampleness in Real Time Using Reserve Demand Elasticity

And here’s link to the last BofA Participant Pulse, which has data on 401k plans and loans, hardship and otherwise:
https://business.bofa.com/content/dam/flagship/workplace-benefits/id20_0905/documents/Q2-Participant-Pulse.pdf

OTHER THOUGHTS AND TRADES

Rather than the above transitional economic themes, here are a couple of trades that went through last week which I found interesting. First, a buyer of SFRM5 9637.5/9612.5/9581.25 put tree for flat.  Trade does well if the Fed stalls on easing and SFRM5 rolls lower.  The only real problem comes on a hard break, but the downside breakeven of 9556.25 is actually below the current SFRZ4 price of 9563.5.  SFRM5 settled 9635.5, trade worth 2 on ultimate settle there.  No gain or loss > 9637

	10/11/2024	10/18/2024	chg
UST 2Y	393.9	395.0	1.1
UST 5Y	387.7	387.5	-0.2
UST 10Y	407.1	407.3	0.2
UST 30Y	438.1	438.0	-0.1
GERM 2Y	223.5	210.8	-12.7
GERM 10Y	226.5	218.3	-8.2
JPN 20Y	173.4	174.9	1.5
CHINA 10Y	214.7	212.3	-2.4
SOFR Z4/Z5	-96.5	-99.0	-2.5
SOFR Z5/Z6	-2.0	-3.0	-1.0
SOFR Z6/Z7	8.0	7.5	-0.5
EUR	109.52	108.70	-0.82
CRUDE (CLZ4)	74.85	68.69	-6.16
SPX	5815.03	5864.67	49.64	0.9%
VIX	20.46	18.03	-2.43

The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that R.J. O’Brien believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

Above all, one hideous figure grew as familiar as if it had been before the general gaze from the foundations of the world – the figure of the sharp female called La Guillotine.

It was the popular theme for jests, it was the best cure for headache.  It infallibly prevented the hair from turning grey, it imparted a peculiar delicacy to the complexion, it was the National Razor which shaved close who kissed La Guillotine, looked through the little window and sneezed into the sack.  It was the sign of the regeneration of the human race, it superseded the Cross.  Models of it were worn on breasts from which the Cross was discarded, and it was bowed down to and believed in where the Cross was denied.

Bonds. Monday’s weakness wasn’t an aberration

October 18, 2024
******************

–Housing Starts today.  Waller speaks at 12:10 on Decentralized Finance.  Kashkari at 10:00.  Some have said that Kashkari’s recent remarks are concerned with excessive bond market (funding) volatility, so worth noting.

–Data stronger than expected yesterday with Retail Sales +0.4, Philly Fed 10.3 from 1.7 last and Jobless Claims 241k from 260.  However, Ind Prod was -0.3.  Yields rose 5-9 bps across the board, with pronounced weakness in the long end as 30s rose 9.4 bps to 4.393%.  Again, this yield level is right around the midpoint of the year, but the return visit to the 119 handle (settlement was 120-00) in USZ4 was quite bearish.  On Monday morning, USZ4 posted a new low of 119-14 on light volume as cash treasuries were closed. Prices rebounded into Tuesday and Wednesday (hi 121-23), but the long-end led yields higher yesterday with USZ4 low 119-30 (currently 119-29).  

–ECB eased by 25 yesterday, and immediately there were projections of another 25 cut in Dec.  ERZ4 settled 9707 Monday, 9715 yesterday and is printing 9719 this morning, in contrast to SFRZ4 which settled 9564 on Monday and slid to 9561.5 yesterday. EUR (ECZ4) has fallen from 1.1166 on Sept 30 to 1.0851 yesterday. 

–Largest volume TY option yesterday was a buy of 30k TYZ4 106p for 3, bringing open interest in the strike to 68k.  The only put with more OI is 109.5 with 106k open, settled 18 with -0.18d vs 112-015.  Ignoring convexity there’s about 15.5 bps per TY point, so the 106 strike is around 94 bps otm and the 109.5 is about 39 bps out.

–GCZ4 settled at a new all-time-high 2702.50 yesterday and prints 2727 this morning.

• ABOUT:
  Former member of the CME specializing in interest rate options and yield curve strategies.