Pinning the 5y yield
March 31, 2021
–One large trade to high-light yesterday, a buy of 25k FVM 123/122/121 p fly 9 to 9.5. Settled 8.5 vs 123-18. Max value at expiry is of course at center strike of 122, around 1.20% vs current 5y at 91 bps. Seems far away until one considers the initial taper tantrum high in the 5y yield was 1.61% in July 2013 and ultimate high was 1.85% in September. I’ve attached a continuous futures chart, which indicates just how lofty we still are given continued massive fiscal spending during the grand re-opening. There was also a late block buy of over 3k WNM 182-28, just above $1m DV01. WNM settled 182-12. Note that 5/30 continues to drift lower, now 148.5 from a high in March of 162, and that the two trades cited above, taken together even though done independently, support the flattening of 5/30. Action is moving to the belly. By the way, during taper tantrum, 5/30 ranged between 210 and 235 bps, ultimately reaching 250 at the end of the year. Again, the tantrum might not be the proper road map, but modest flattening in 5/30 doesn’t really indicate that the move is over.
–New high, but just barely, in euro$ curve. Red/gold now at 180 compared to 2/10 at 157.5. Steepness continues to move forward on the curve.
–Biden set to announce $2 trillion plus infrastructure plan today. ADP also released expected 550k.
