Pricing towards ease
November 6, 2023
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–Huge rallies in stocks and bonds Friday on a weak employment report. Ten year yield down over 12 bps to 4.663%. SFRH5 and M5 were both up 20 on the day, straddling 4% (H5 9593.5, M5 9610.0. New low in the near calendar spreads. The lowest one-year calendar is SFRH4/H5 at -116, down 11 on the day. The most inverted 3-month spread is SFRM4/U4 at -32.5 (9506.5/9539.0).
–Midcurve Nov SOFR options expire Friday. 0QX2, 2QX3 and 3QX3 straddles (midcurves on Z4, Z5 and Z6) are 17 to 19. 2QX3 9625^ settled 19 vs 9619.5 on Dec’25. This is the highest point on the SOFR curve with a yield of 3.805%. High premium, yet Z5 was up 18 on Friday alone. FVZ3 atm 105.75^ settled 1’005, which is 24-25 bps with three weeks left.
–KOSPI up 5.7% today as S Korea apparently banned short selling. That’s one way to support markets…
–The ad I clipped below from Vanguard sort of struck me today. Subtext is that they do better than individuals just opening their own Treasury-direct accounts. Obviously they see clients moving away. When do those funds come back in? Druckenmiller and Gundlach have already advertised t-bills and 2-yr notes. Doesn’t take much in the way of ‘active management.’
–Three, ten and thirty year auctions this week. These did not go well in October and we’re now at lower yields. FOMO in the treasury market? Or fear of being buried in an avalanche of continued supply?
