Bond yield rebounding slightly this a.m.
July 9, 2021
–Yields continued to fall yesterday with tens down 3.2 bps at futures settlement to 1.289%. Fives were the leader, falling 4.5 to a yield of just 73.7 bps. On the euro$ curve greens (3rd year) were the strongest, closing +8.0. However, the curve steepened quite a bit from there, with golds (5th year) up only 3.375. 2/10 notched a marginal new low at 110.
–Three month libor neared the all-time record low, setting at 11.9 bps yesterday. The BBG bank funding index BSBY set at 10.098 bps; the spread of 1.8 is quite narrow compared to what it has been (more like 4 to 5 bps) suggesting that libor has a good chance to rebound higher.
–Though there has been significant position liquidation in euro$ puts, there is some buying shifting to March midcurves: 2EH 9825p settle 6.0, buyer of 12k, and 3EH 9800p settled 9.75, buyer of 20k for 9.5 yesterday.
–A couple of related, or perhaps not, pieces of news yesterday. Wells Fargo is closing all existing Personal Lines of Credit, apparently related to previous transgressions. (Could it also mean that the end of rent moratoriums are going to lead to bankruptcies?) Also, Consumer Credit was released for May, and it showed a whopping $35 billion increase, $9b in credit cards and $26b in non-revolving autos and student debt, the latter category being up at a 9.5% annual rate. I suppose if I had the chance, I would tap the student loan pool, as the new administration will be ever more tempted to forgive it all (it’s for the children). The auto loans probably can’t last at the same blistering pace. People are starting to return slowly to public transit. The end of WFH is showing up in things like shelter dogs being returned to shelters. JOLTS data shows a remarkable amount of job openings, just one more piece of data that doesn’t quite square with the stunning bond rally of late.–Reuters reports that China cut its RRR (reserve requirement ratio). “…releasing around 1 trillion yuan in long term liquidity to help underpin an economic recovery that is starting to lose momentum.” They said it will help small firms deal with the impact of the surprising rise in commodity markets.
