Copper/gold ratio and heavy treasury supply point to higher yields
November 23, 2020
–Friday featured a late sell off in stocks which has reversed this morning, and a bid to fixed income in the context of a flattening curve, both of which have also partially reversed. Tens ended down 2.4 bps to 82.8. 5/30 treasury spread notched a new recent low of 115.7, down 3.6 on the day. Today’s news includes Chicago Fed’s Nat’l Activity Index and Markit Composite. Treasury auctions 2’s and 5’s today in size of $56 and $57 billion. 7’s are auctioned tomorrow.
–The next couple of sessions will see heavy roll activity in treasuries. About 21% of fives have already rolled, with tens being around 17%. With the expiration of December treasury options, expect wing replacement, perhaps as far out as March as vols remain quite low.
–Dec gold is at 1865 this morning, down over $7 even as the dollar trades near the year’s low. A break of $1850 would likely spark panicky long liquidation from weaker hands. Gold’s relative weakness is a bit surprising given bitcoin’s strength. Soybeans are making new yearly highs this morning with the Jan contract close to $12, and corn is also at the highs of the year. Dec Copper made a new high for the year on Friday, but has had a slight pullback this morning.
–Attached is Gundlach’s ten year treasury yield indictor: the copper/gold ratio. If this thing works, either gold has to rally relative to copper, or ten year yields need to start rising! The Copper/gold ratio is as high as it has been since late January…when the ten year yield was 100 bps higher!
