A reversal of Friday’s yield plunge
December 7, 2021
–Significant rise in yields yesterday with tens jumping 9 bps to 1.431%, almost a complete reversal of Friday’s decline. Curve steepened from depressed levels, with red/gold euro$ pack spread gaining more than 7.25 bps as reds fell 6.5 and golds dropped 13.875. Three year auction today of $54 billion, followed by 10’s and 30’s Wednesday and Thursday. Today’s news includes the trade data, as the dollar index continues to strengthen and looks poised to test last month’s high of 96.94 (also the high of the year). The final Productivity data for Q3 is also released, expected -4.9% with Unit Labor Costs +8.9%… old data, but a reminder of why Yellen frets over a wage-price spiral.
–December midcurves expire Friday. Blue Dec, EDZ’24 fell 12.5 yesterday to 9828; 3ez 9825 straddle settled 11.0. Pricing on expiring straddles is usually pretty accurate, but with auctions over the next few days, punctuated by CPI on Friday, I could not sell this level. 3EZ 9812.5 put settled 1.0, which seems like a cheap gamma buy.
–Three month libor edged to a new recent high of 19 bps, having been more like 12.5 a month or so ago. A signal of slightly tighter credit conditions on the horizon? EDZ1 expires Monday and is 9979.0 or 21 bps. Libor usually converges to the futures price.
