Small pop in yields after last week’s plunge
December 5, 2023
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–Yields reversed part of Friday’s plunge. Yesterday the ten year finished at 4.29%, up 6.4 bps, taking back about half of Friday’s 12.4 bp drop to 4.226%. SFRZ4 was up 21.5 on Friday to 9601.0, yesterday it settled -9.5 at 9591.5. Gold and silver posted huge outside day ranges, having made new highs early Monday morning; upside is likely contained over the short term. Probably worth a mention is that the ten-year breakeven (treasury – tip yield) edged to a new low of 221 bps vs a recent high over 241 bps. Current level is near the low of the year.
–Moody’s cut China’s credit outlook. Maybe Taiwan can be persuaded to be a cosigner on new loans. Taiwan election is January 13.
–Call condors remain a popular trade in SOFR, in an attempt to peg Fed easing scenarios. Examples, 20k each; +SFRF4 9468.75/9481.25/9487.5/9500 c cond 5.25 to 5.5. SFRH4 settled 9486.0, which is in the sweet spot for expiry. SFRJ4 9468.75/9493.75/9537.5/9562.5c condor 11-11.5 paid. Max payout is 25.0 less premium paid, occurs in the 43.75 range between the center two strikes. SFRM4 settled 9521.5.
–ISM Services today expected 52.2 vs last at 51.8. JOLTs expected 9300k vs 9553. This year’s low is 8920k. In 2018 before the wheels came off, it was more like 7200. Atlanta Fed GDP is released tomorrow. The last reading on Dec 1 was 1.2%, down from 1.8% on Nov 30. Fed’s Z.1 quarterly report (HH net worth) is Thursday.
