Bear Market in Rates
August 15, 2023
–Surprising weakness in front end/belly yesterday. In SOFR, red pack -8.5 (rate of 4.1625%) and green pack -5.75 (rate of 3.73%). In treasuries, 2y +6.8 bps to 4.961%, 5s +4.8 bps to 4.355%, 10s +1.8 to 4.182%. Selling has persisted overnight. Yesterday TYU3 settled 110-00 and last print (6:30 est) 109-23+. USU3 settled 120-22 and now 120-04. Below I have marked some old lows on the front contracts in TY and US for comparison. The lowest settle on front TY contract was 109-11+ and low settle on front US contract was 118-10. DV01 on TYU ~ $65 and on US $138, so approx 15.3 bps per point on TY and 7.2 bps per point US.
–New highs in several of the near 1-yr SOFR calendars as reds were pasted. U3/U4 settled -86.25. +8.75. Z3/Z3 -118, +6.0 and H4/H5 -122 (now the lowest 1-y spread on the strip) +1.5
–Russia raised rates 350 bps to 12% to support the ruble, while China cut rates in an effort to shore up activity. USDCNY is close to a test of last November’s high of 7.3274. The negative vibe of high unemployment among China’s youth has also been reversed – by suspending publication of that particular data series. There. Problem solved.
–New block trade in SOFR options. 20k SFRH4 9487.5/9537.5cs sold (settled 10.5 ref 9477.5) vs SFRM5 9600/9650cs bot (settled 17 ref 9614) paid 7.75. A hard rally in near contracts will not be a help for this trade.
Low ticks on front TY contract:
108-26+ 21-Oct
109-31+ 02-March
109-240 04-Aug
109-280 yesterday
LOW SETTLE 109-11+ on 20-Oct
Cash yield at futures settle 418.2. High yield October 4.245
Low ticks on front US contract:
117-19 24-Oct
121-27 02-March
119-25 04-Aug
120-06 yesterday
LOW SETTLE 118-10 24-Oct
Cash yield at futures settle 427.9. High yield October 438.0
