And forward though I cannot see…
December 29, 2023
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–Fairly quiet session yesterday. Yields rose, seven-year auction was a bit weak. Tens finished up 6 bps to 3.846% while 30s added 4.3 bps to 3.986%. On the SOFR curve reds through blues were down 4.5 to 5.5 bps in price. As mentioned earlier in the week, 5s and 10s seem to like 3 7/8% and 30s are comfortable at 4%. I think those yields are too low, but that’s how we’re finishing out 2023.
–Pretty fascinating Doomberg piece out today, mostly about potential energy production in the western hemisphere. President Monroe (and the Monroe Doctrine) are used as the hook to the piece -the US was (unsurprisingly) running federal gov’t surpluses in 1823 – but there’s also this tasty excerpt relating to gold:
How things have changed in just two short centuries! With the price of gold fixed at just under $20 an ounce, US federal government expenditures amounted to the equivalent of less than 600,000 ounces of the stuff over the nine months referenced by Monroe. By contrast, today’s sprawling federal bureaucracy spends that much gold in about 100 minutes, churning through the global market cap of all the gold ever mined roughly every two years.
–Applying some of the bitcoin analysis I’ve seen, that means gold should be a LOT higher! [insert two rocketship emojis here. maybe three]
–Anyway, back to the staid world of interest rates. The Federal gov’t currently has unfettered ability to borrow at low long-term rates to keep the bureaucratic plates spinning, as the leading investment minds focus on the magnitude of rate cuts in the year just before us.
Still, thou art blest, compar’d wi’ me!
The present only toucheth thee:
But Och! I backward cast my e’e,
On prospects drear!
An’ forward tho’ I canna see,
I guess an’ fear!
Happy New Year!
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Here are a couple of plays from yesterday. The first is bearish, but still targets FF about 50 lower than current:
SFRJ4 9550/9525/9500p fly 4.75 paid for 10k. Settle 5.0 ref SFRM4 9546.5
SFRU4 9525/9600/9675c fly bought 11k, settled 18.5 ref SFRU4 9587.5.
BLOCK SFRM5 9675/9750/9850/9925c condor bot vs sale SFRU4 9543.75/9475.0ps, paid 6.75 for 20k.
9675c 62.25
9750c 33.25
9850c 13.75
9925c 7.00 >>22.25
9543.75p 22.0
9475.0p 5.75 >> 16.25 6.0 pkg.
In order for the Sept’24 put spread to settle worthless, we need at least 75 bps of cuts, which would take target range to 4.5-4.75% and likely leave EFFR around 4.58%.
