New high stocks
August 24, 2020
–New highs in stocks this morning as Covid relief appears to be right around the corner. Fixed income edging to marginally higher yields for the time being.
–Treasury option expiration on Friday pegged the 139.5 strike. October 139.5 straddle settled 1-06 with a month to go. This week Powell speaks on Thursday and Treasury auctions just shy of $150 billion in 2, 5 and 7 year notes starting Tuesday. Chicago Fed Nat’l Activity index today expected 3.7 from 4.1 last, a huge V-shape recovery from the low of -18.1, but all dependent on Federal gov’t generosity.
–There are a couple of ZH articles citing the FT and others noting that US bankruptcies are setting a record pace outside of 2009. I have attached a chart of the BBG bankruptcy index and Barclay’s hi yield to worst. By 2008-09 standards this episode hasn’t been too bad, but it has surpassed the oil patch problems of 2016. What is remarkable is how quickly the yield has come down. It used to take much longer for the market to shake off the demand for higher yields in order to be compensated for risk . The thesis I am going with is that if risk is suppressed in one place, it generally pops up with a vengeance somewhere else. This time it seems to have spilled over into social unrest.
