March 29, 2018. Paring back ED calendar longs
–End of month and quarter. Net changes yesterday weren’t particularly large, with the ten year yield -1.9 bp to 277.3. However, many euro$ calendar spreads eased to new recent lows as the curve flattened. Partially due to the new 2y, 2/10 closed 48.7, a new low and down 3 on the day. 5/30 closed 42.3. While the red/gold euro$ pack spread is only about 7 bps from the low made near the end of the 2004/2006 hiking campaign, treasury spreads are still well above those levels. For example, red/gold settled 16.75 vs a low 10.25 in Feb 2006. But both 2/10 and 5/30 went negative at that time, with the former -19 bps and latter -10. In any case, near euro$ one-year calendars made new lows, with the peak spread, EDM8/M9 at 38, -0.5 on the day. EDZ8/EDZ9 fell 2 to 30, and EDZ9/EDZ0 also fell 2 to close at 6.0. Open interest changes were small on Z8 and Z9, but EDZ0 plunged 70k, so it appears as if some of the long spreads are throwing in the towel. Red to green pack spread (2nd to 3rd year) closed at a new recent low of just 8.5 bps (which of course, fits with the price action). The other notable open interest decline was in EDM8, which fell 35k.
–Today brings the Fed’s favored inflation gauge, PCE prices. Headline yoy is expected 1.7% (unch’d vs last) and Core expected 1.5 to 1.6 vs 1.5. If the number is low, then stocks will likely rally as a less aggressive Fed might be the perceived outcome. If higher than expected, then look for new lows in the curve. Either way, it seems like odds favor a further rally in greens and blues.
–Beware long weekend exits and dwindling size bid/offer in equity index products. These days are subject to air pockets.
