Hint from oil and curve
May 6, 2020
–Notable feature yesterday was a steeper curve, with 10/30 treasury spread at 67, its highest level since mid-2017. The ten year yield on its own was +1.6 at 65.4 and thirties rose 3 bps to 132.5. 5/30 gained 2.5 bps to close at 96.2, not quite at a new high. Three month libor set yesterday at 47.4 bps (new low), leaving only 11 bps of convergence with EDM0 which settled 9963.5. An article on BBG today notes that ‘The Fed is embracing libor again…’ having used it as a benchmark in the Main Street Lending program. Large trade in EDM0 options was a new seller of 40k EDM0 9950/9937p 1×2 at 0.25 (sold 9950p).
–In the past six sessions oil (CLM0) has rallied from a low of 10.07 to this morning’s high of 26.08. Just when everyone is convinced (due to the negative price debacle) that oil will never be in demand again, it rises like a phoenix. Perhaps a reasonable idea to bookmark with respect to interest rates. And perhaps the long end of the market is trying to send a gentle reminder. Treasury skew is shifting to reflect demand for puts.
–Bund/BTP spread is 244 this morning, not quite to the recent high of 278, but still well above the late 2019 into early 2020 range of 130 to 165. Unicredit posted a Q1 loss of €2.7 billion, €1b more than expected.
–ADP today expected -21 million in front of Friday’s payrolls.
