July 25. A cap on small caps
–Yields eased slightly after the recent run up, with tens -1.5 bps to 294.7. Curve edged flatter. Stocks came roaring out of the gate following Alphabet’s surge on Monday after hours, but the rally fizzled. The Russell in particular seems to have a lid on the upside. There are now three outside days with essentially the same tops: on June 21 the high was 1720.80 (new high, outside day, lower close, key reversal) on July 10 the high was 1715.0 (outside day, lower close) and yesterday the high was 1711.80, (outside day, lower close). Same highs using the cash index are 1708.00, 1708.50 and 1706.80. A close at new highs would likely see a flood of buyers, but for now there seems to be a lid just above 1700; I don’t recall having seen this sort of formation recently.
–Lib/ois continues to compress with a new recent high in EDU8 at 9758.5, which caused a new high settle in EDU8/U9 at 56.5. Quite a contrast with the one-year forward spread, as EDU19/EDU20 settled 5.5. There have been quite a few long (and patient) positions expressed in EDU9, including the buyer of EDU9/EDU0 spreads at 2.5 last week and the buyer of EDU9 9737/9775/9812c tree for 4.0 (both >40k). FFV8 settled unchanged at 9785.5, indicating close to 90% odds of a Fed hike in Sept.
–Good size late buying in Green midcurve straddles: 2EZ 9700^ settled 35.5, and 2EH 9687^ 46.0 paid for 20k covered 9696 with 13d.
–News today includes New Home Sales and the 5 year auction. Possible tariff news from Juncker’s visit with Trump.
