Huge NFP met with a yawn by FI
July 3, 2020
–The ten year yield declined on an increase in payrolls of 4.767 million! Midday at futures settle tens were 67 bps, down 1.3 on the day. A couple of the euro$ one-year calendar spreads notched new lows with EDZ0/EDZ1 now the lowest one-year on the board at -10, down 1 on the day. Of course, EDZ0/EDH1 is -9.5, representing nearly all of the Dec/Dec price. The ten year inflation indexed note yield is now -75 bps, matching the low from 2013 and nearing the all-time low of -91 in 2012. The ten yr note to tip breakeven made a new high at 142 bps. At the start of the year this spread, supposedly a long term proxy for inflation, was 180 bps, the March crisis low was 55.
–What a difference between this payroll number and last. The June release of NFP up 2.509 million caused a yield surge and steeper curve, with tens up to 89.6 bps which was a gain of nearly 9 bps on the day, and 2/10 up to 68 (+7). These levels were the highs of the month. Yesterday’s NFP of +4.767 million caused barely a ripple, with 2/10 at 51.6, essentially unch’d on the day. Of course, in both cases stocks rallied into and out of the data, with the top in SPX a few days after the payrolls report.
–TYQ 139 straddle settled 58/64, the equivalent of a little over 10 bps with two weeks to go. CLQ0 settled 39.80 on the June 5 employment report; yesterday at 40.65.
–Next week is quiet in terms of economic releases, with ISM Services Monday and PPI Friday. Treasury auctions 3s, 10s and 30s.
