Uncertainty
Sept 11, 2019
–What a difference a week makes. Last Wednesday, Sept 4, EDU20 settled 9881.0, a new high. Yesterday it settled 9853 and traded 9850 this morning, a drop of over 30 bps. The red pack led weakness yesterday, falling 10.375 bps with greens -8.75, blues -7.5 and golds -6.625. Red/gold pack spread posted a new recent low of 7.375 bps. Moves across markets were suggestive of squeezing through the exit doors. There’s much discussion of momentum vs value, with the former being crushed to the benefit of the latter. ZH had a note saying that the ‘most shorted stocks’ performed best yesterday.
–Sept midcurves have consistently priced cheap relative to actual movement, and expire Friday. 0EU9 9850 straddle settled 10.5 yesterday which now seems rather expensive. TYV 130 straddle settled 60 with just ten days to go. Not long ago, atm straddle in tens was trading just under a point (around the current level) with five weeks until expiry.
–US treasury auctions of 10s today and 30s tomorrow, but corporate bond issuance has also heated up, and there’s a heavy slate of IPOs on tap. Interest markets appear to have shifted trend from ‘buy dips’ to ‘sell rallies’. Often there’s a rally coming out of the third leg of the refunding, but if there is, it will likely be used to pare back duration.
–Today’s news includes PPI expected 0.0 with Core +0.2. YOY Core expected 2.2. CPI tomorrow, along with the ECB.
–9/11 anniversary. I vividly remember being on the CME trading floor, there was almost a lull after the first plane hit, as there was some speculation of an accident. But when the second hit, one direct line blinked and I instantly grabbed it, with no order other than BUY! which I did as the room erupted and every phone lit up. We left early that day; trying to confirm unmatched tickets before we left. My desk crossed the river and went to breakfast where we watched tv’s in a daze. Peak uncertainty on all levels.
