CPI and the Z.1 report
March 10, 2022
–Today features CPI, expected 7.8 to 8.0% yoy. Job Claims as well. Wednesday was the last gasp QE buying, as the Treasury auctions the thirty-year bond today. Also released today is the Fed’s quarterly Z.1 for Q4. The financial press mostly focuses on the Household Net Worth feature of this report, which will surely post a new record high. In my opinion, this will prove to be the high for some time, perhaps years, as the Fed withdraws accommodation and fiscal stimulus from the Federal Gov’t has now gone into reverse. Also contained in the Z.1 report are debt levels for Households, Business, and Gov’t. I would simply note that pre-covid in Q3 2019 the amount of Fed’l Govt debt was listed at $18.844T, and two years later, Q3 2021 it was $24.648T an increase of 31%. Without the Fed buying a lot of this debt, and with inflation around 8%, it’s pretty tough to see who buys long dated treasuries which are sporting a yield of 2.3%.
–On a technical basis, this has been a bearish week so far for the long end. Both TY and US contracts have featured ranges that engulf the previous week. For example USM on Monday marked a high of 160-12, late yesterday it was more than 5 points lower, with a low print of 155-08. In TYM2 the high was 129-04 and yesterday’s low was 126-165. This suggests that impulsive longs are getting shaken out.
–Implied vol took a tumble yesterday. EDZ2 9800 straddle settled 94.5 on Tuesday and 88.5 yesterday with futures -3 to 9801.5. TYJ atm 127.25 straddle on Tuesday was 1’59, but as we slid to lower vol strikes, yesterday’s 126.5^ settled 1’33. Yesterday there was a new seller of 35k EDU2 9837/9762/9712p tree at 13.5. Settled 37.75/23.0/8.5 or 14.5 vs 9833.5 as demand for downside strikes continues. March ED midcurves expire tomorrow.
–This morning April WTI (CLJ2) has rebounded over $4/bbl to 113.00 as Senator Warren helpfully suggests a windfall tax on oil companies.
