Yields march higher
January 12, 2021
–Interesting session Monday which featured continued steepening and a push to higher yields. Tens rose 2.1 to 113.1. Back month euro$ calendars have exploded over the past week as sentiment has shifted. Red/gold euro$ pack spread (2nd yr forward vs 5th year forward) rose over 4.5 on Monday to 98.5, equaling 2/10 which closed 98.8 (+1.3). Red/gold was 72 on Jan 4, so it’s up 26.5 in six sessions. As another example, EDH3/EDH4 (green/blue March) settled yesterday at 41 from 28.5 on Jan 4. There was particularly heavy trade once again in Blue March midcurve puts, with the standout being a buy of >100k 3EH 9887p for 2.5 (settled there vs 9924). Taking advantage of this trade, there was a buyer of 20k 9912/9900/9887 put tree for 0 (settled 0: 6.5, 4.0, 2.5). These trades give some sense of how the market has positioned: the thought had been to keep premium outlays low by expressing a short, but selling extra downside puts, because after all, the market hasn’t shown true downside follow-through in years. Now we see a reach to cap off open-ended downside risk, even as others dismiss the possibility.
–What has contributed to the shift? Biden is unveiling his multi-trillion stimulus package on Thursday, just as treasury attempts to auction $38b in tens today and $24b thirties tomorrow. I suppose that can cause a ‘concession’. TYH currently at a new low 136-07.
–This may or may not fall under the heading of speculative excess, but Jan bitcoin futures fell 5740 or 14% yesterday to 33780. On the same topic, here’s a snippet from Jeremy Grantham’s piece: “…my personal favorite Tesla tidbit is that its market cap, now over $600 billion [yes he’s off by $200 billion, but that was DAYS ago] amounts to over $1.25 million per car sold each year versus $9000 per car for GM.” Grantham minces no words and says it’s all a bubble.
–In other news, the FBI is warning of general protests which may break out into something “mostly peaceful”. A private collector of “decommissioned surplus military equipment” helpfully chose yesterday to have a tank delivered by being driven down the streets of Palmetto Bay, Florida. I don’t mind tanks in the streets, just don’t cut off my social media feeds… And the mayor of Washington is advising those planning to attend festivities associated with Biden’s inauguration to stay home. All nine of them. [too early?]
