Level and duration of 2/10 inversion nearing extremes
June 23, 2023
–The 2/10 treasury spread was trading -100 yesterday, extreme inversion. 5/30 also ended at a new recent low of -17 bps. The pre-SVB low in March in 5/30 was -46, so we’re still well above that level. However, the early March low in 2/10 is -109. 2/10 has been inverted, (below -15), since July 2022. One year is about the maximum for inversion for last few episodes.
–On the SOFR curve SFRU3/U4 closed at a new recent high of -118 as reds took the brunt of the selling following Powell’s repeated assertions that no ease is forthcoming and that there will likely be a couple of more hikes this year. (Does this rhyme slightly with, “We’re nowhere near neutral” in October 2018? Stocks slid 20% after that). SFRU3 settled 9864.5 or 5.355% which is consistent with at least one more 25 bp hike by Sept. SFRU4 settled 9582.5 or 4.175%. SFRZ4 settled 9615 or 3.85%, the lowest settle in terms of price since SVB; the low settle in that contract in early March was 9596.5.
–Bank of England surprised with a 50 bp zinger, and SFIU3/SFIU4 went from -3.5 settle Wednesday to -27.5 (obviously the market was looking for 25). This has been an extremely volatile spread. In mid-May it was -90, only to rally to +13 by June 19, down to -3.5 by Wednesday and -27.5 Thursday (9411.0/9438.5).
–New high $/yen yesterday at 143.18, the high print last year is 151.95. EUR/JPY is 156.88, the highest since 2008 when it reached 169.96. BOJ going to do anything about it? There are a lot of carry trades based on yen rates.
–BBG leads off today with ‘The World’s Empty Office Building Have Become a Debt Time Bomb’. Subtle. On twitter I saw this snippet yesterday, “…4.55% of auto loans for people ages 18-29 are 90+ days delinquent – the largest percentage of late auto loan payments since 2009.”
–Sen Warren harangued Powell to take full responsibility for banking problems yesterday. She sits on Subcommittees on Financial Institutions, and Securities, Insurance and Investment, and Chairs the Econ Policy Committee. Hey Elizabeth, do YOU have a certain responsibility to oversee banking issues? Or does it serve the country better to just blame Powell? Gov’t at work…
