April 26. Why didn’t you just sell EUR?
–The big trade yesterday was the massive US 5/10 buy vs Bobl/Bund sale.
- buy 100,174 US five-year treasury futures
- sell 63,887 US ten-year treasury futures
- sell 65,362 German bobl futures (5-year)
- buy 29,145 German bund futures (10-year)
–According to prelim figures, open interest in US 5y was +114k. However, in tens it was DOWN 15.6k. I thought position was new… In any case, the shock waves of this trade reverberated into the euro$ curve as well, with red to deferred calendars making new highs. For example, red/gold pack spread (2nd to 5th year) was up 2.375 bps to 20.125, new monthly high and a pretty solid bounce off last week’s low of 8.25. EDZ0/EDZ1 rose 1.5 to close at 4.0, having threatened to invert last week.
–The other story is that US yields continue to rise, with tens closing above 3% (3.024). While stocks have seen a modest bounce since Tuesday’s sell-off, the fact is that yields are getting to the point where they are much more of a competitive threat to stocks. Shift into fixed income, ‘get paid to wait’. Of course, the avalanche of supply may provide better entry levels in FI as well, which creates incentive to favor the short end, another factor which supports the steepener.
–Of course, euro$ contracts are also pressing to new lows with EDM8 9760.5 settle, and FFF9 at a new low of 9774.0, 56 bps above the current Fed Effective.
–Today’s news includes the ECB press conference, with Durables released in the US, expected +1.7 with Core Capital Goods +0.6. Trade balance -74.5b, Jobless Claims and 7 year auction.
