No evidence of systemic crisis?
April 8, 2020
–The initial move yesterday in stocks evaporated at the end of the day, and bonds retraced some of their losses. At the 3:00pm futures close I marked tens at 73.3 bps, up 5.8 on the day. Curve was slightly steeper with 2/10 up 4 bps to 37.5. Gold traded above the important 1708 level but then failed with a settle of 1683.70 (GCM0).
–From the Feb high to March low, NQM0 fell 3151 points. At yesterday’s high the retracement was 1674 points or 53%. Same in ESM0: fell 1166 points and rallied 576 to yesterday’s high or 49%. In the Russell 2k future, the same move off the bottom was only 32%. With all of the administration’s moves targeting small business, I would have thought RTYM0 would have done better. The smaller business economy doesn’t seem as hopeful about a V shaped recovery.
–CLK0 (May WTI) settled 23.63, down 2.45, while the June contract settled down only 1.29 at 28.69. Large oil etf said to be rolling positions, which appears to have put additional pressure on the front contract. Over time storage issues will hopefully come back into balance.
–While April ED contract was essentially unchanged at 98.7275 going into Thursday’s expiration, EDM0 fell 4.5 to 99.40, having traded over 99.50 on Friday (still an extraordinarily wide spread of -67.25 in J0/M0). Partially this is related to expected roll down as the 3-month libor setting hasn’t come down particularly aggressively. Perhaps the implementation of CPFF (Commercial Paper Funding Facility) next week will help. Also worth noting, the the head of the FHFA, Mark Calabria, said Fannie and Freddie were unlikely to aid mortgage companies as he saw no evidence of systemic crisis. One source suggested this was posturing, intended to force the Treasury or Fed to take the lead role to support these businesses. Many smaller mortgage firms are likely to go under; I don’t know if federal programs enacted thus far to help people make payments will go directly toward rent and mortgage. In any case, this is another important uncertainty which contributes to funding pressure. –Fed minutes today will likely be interesting as a case study in crisis management. 30 year auction.
