Bullard or BlackRock?
April 14, 2022
–Large block buying of 2y note futures (~80k in total) helped the cash yield fall another 4.9 bps to 2.336%. Red eurodollars were strongest on the strip closing +5.25 (greens +3.875, blues +3.0 and golds +3.25). Open interest in TU was +21k, while it was down 25k in FV and TY. Perhaps unsurprisingly there’s an article on BBG this morning citing BlackRock as saying the market is wrong in pricing aggressive rate hikes and that the Fed will stop at around 2%. On Tuesday, FFF’23 (which forecasts the year-end FF target) settled 9745.5 or 2.545%. Yesterday the contract surged 12 bps to 9757.5 or 2.425%. The 2/10 spread which printed -5.5 on April 1 has rebounded to 35 bps, about 13 bps higher than it was on March 16, the FOMC meeting. Here’s an amazing round turn: on March 16 EDM3/EDM6 settled -39.0. The low settle was -93.5 on April 1, but it traded around -100. Yesterday it settled -39, exactly where it was on the last FOMC. Does this extraordinary bounce in the curve reflect a false signal in terms of the possibility of recession? Not hardly. The Fed’s new emphasis on balance sheet reduction suggests that the Fed would like to see a steeper curve, if not to dissuade recession cassandras, then to help the treasury auction new bonds with the carrot of positive carry.
–Apart from the TU block buys there was also heavy selling of FV puts, with 20k FVM 113.25p sold 25.5 to 25 (25s vs 113-28) and 20k FVM 112.5 sold 19 to 13 (17s). The former saw open interest rise 15.6k while the latter appears to be an exit with OI down 13.6k.
–ECB this morning on the heels of 50 bp rate hikes by Canada and New Zealand yesterday, and South Korea this morning. C’mon Lagarde, everyone’s doin’ it. Today also brings Retail Sales expected +0.6%. U of Mich Consumer Sentiment is released, important as it is near the lows of the GFC.
