March 14. Deflating curve, vol and activity
–CPI was as expected with yoy Core +1.8 and headline +2.2 yoy. Retail Sales expected +0.3 and PPI expected +0.1 headline, and +0.2 Core with yoy Core 2.6.
–Yields eased with a solid 30 year auction, though the biggest piece of news came on the political front with the ouster of Rex Tillerson, which took the wind out of stocks. Vol deflated after the data and the curve flattened. I marked 2/10 at a new low of 58.3 and 5/30 at a new low of 47.7. Red/gold is closing in on 23 bps, and as mentioned yesterday, will likely print a new low for the year as March rolls off the board Monday. The June19 1 yr avg is 9716.625 and the June22 1 yr is 9698.75 so that spread is now just 17.875. As mentioned over the weekend 2EM and 2EU straddles hadn’t declined at all for 5 weeks going into Friday 5-March, ending at 33.5 and 43.5. The market is now catching up, with 2EM 9712^ at 29.0 and 2EU 9712^ 40.5. Likely to see further pressure.
–Front end continues to trade with an anvil around its neck. A March hike is completely priced, but dot projections next week will be of interest. Front end weakness is one factor pressuring the curve, but other issues are also at play. Interesting note on BBG mentions that not a single Japanese ten year traded Tuesday. From the article: “Governor Haruhiko Kuroda noted to lawmakers Wednesday that the central bank has bought 75 percent of the government bonds issued in the fiscal year ending this month.”
