That’s what the world is today
November 2, 2021
–The RBA decided to:
- maintain the cash rate target at 10 basis points and the interest rate on Exchange Settlement balances at zero per cent
- continue to purchase government securities at the rate of $4 billion a week until at least mid February 2022
- discontinue the target of 10 basis points for the April 2024 Australian Government bond.
–Some see the result as less hawkish than expected, but the point is that market forces overwhelmed the target on the Aussie April ’24 note, and related issues are being faced to a greater or lesser degree by many central banks. A couple of interesting notes from eurodollars: Yesterday’s three month libor setting was just over 14 bps, having been anchored for some time at 12 to 13. A week or so ago there was a buyer of 100k EDM2 9981.25/9987.5cs for 1.5. This libor setting chews into the upper strike, threatening the 6.25 max value. Of course, this setting may just be end-of-year pressure which recedes by June, or… it may be an initial fissure regarding credit in general. In any case, EDZ1 9962.5 puts traded at 1.0 yesterday!! Traded small, but they are 15.5 out of the money with just six weeks to go on the front contract. That’s a sign of forced buying. There was also a new buyer of 40k 0EH2 9787.5 puts for 3.5 ref 9890.5 in EDH’23. So these puts are 100 out of the money with the contract already having fallen 40 bps in the month of October. It’s not as if every trade is a reach for premium, but there was also buying in 3EZ 9775p for 1.5 and 9800p for 5-5.5 (settled 1.5 and 4.25) with open interest in all 3EZ puts rising 145k. Buying gamma to protect vega (paraphrasing NovaSatus Trading)
–New highs once again in near euro$ one-yr calendars. EDZ1/EDZ2 up 1.5 to 68, while the peak 1-yr has moved forward to EDH’22/EDH’23 at 82, up 2 on the day. Back spreads continue to make new lows. For example, green to blue pack spread (3rd to 4th year forward) settled at just 11.625. So front spreads are 7x higher than back spreads. In short sterling, we’re nearing a one-year calendar of 100 bps as Dec’21/Dec’22 closed at 97, having launched off a September low of 36. However Dec’23/Dec’24 sterling settled at NEGATIVE 17.
–Virginia governor election today, with possible implications regarding national fiscal stimulus. (Not really…both parties see spending as a great way to buy votes). However, Manchin is still holding out on the Biden agenda. Treasury announced plans yesterday to borrow $1.02 trillion this quarter and $476 billion next quarter. Mind-boggling numbers. What does it all boil down to? Well that’s easy. $8 wheat. (High since December 2012).
“And the band played on.”
