Food scarcity / security
February 9, 2021
–Profit taking in treasury curve. 2/10 at 105, down 1.3 on the day and 5/30 at 146.8, down 2.8. However, the euro$ curve steepened to new highs. Red/gold pack spread closed at 110 at a new high, up 1 on the day. EDM3/EDU3 which is the libor extension kink, settled at 18.5 also a new high. The next closest 3-month spread is EDU3/Z3 at 10.
–Implied vol faded on the long end with the small retracement in the curve and yields. The ten year note ended at 115.8, down 1 bp.
–New buyer of 40k 2EM 9937/9912ps for 2.0, settled 1.75 vs 9960.0. Also a buyer of EDZ2 9925/9875ps for 2.0 vs 9969.5; some plays being made for the possibility of the Fed moving up a tightening timeline. The latter trade expires at the same time as EDZ2 futures, 679 days from now. Not much decay on that!
–Ten year treasury/inflation-indexed note breakeven hit a new high of 220.3. CPI released tomorrow.
–I’m no expert on grains, but I spoke to a friend yesterday who noted a new high in March Corn at 564, and pointed out the March/July calendar spread which has also surged to 15 1/2 cents (thanks DK). When demand is strong and supplies are tight, the market squeezes the near contract. Though not as pronounced, soybean and wheat calendars are showing the same thing. Food prices aren’t considered a major budget item in the US, but recall that the spark for the Arab Spring was just that. Additionally, oil settled at a new high yesterday with CLH1 57.97, and it’s over 58 this morning. For a long time last summer Corn languished around 320. Now the July 8 dollar calls (C N1 settled 548) are 3 5/8.
