April 19. Higher oil, higher commodities, higher rates
–Crude oil and commodities are getting a larger role on the financial stage as CLM8 approaches $70/bbl (late yesterday was 68.80, +2.28, and this morning traded well above 69). While primarily due to Saudis wanting a higher price, a BBG article notes that BCOM (Bloomberg Commodity Index) has broken out to a new high today. Could a small contributor also be that China cut its reserve requirement ratio on Tuesday by 100 bps? I saw some commentary saying it was NOT a change in policy stance, but a cut is a cut.
–Yields pushed higher across the curve yesterday with tens rising 5.2 bps to 286.4. Curve edged slightly steeper from its flat configuration. While not particularly important in terms of an indicator, perhaps worth noting that ten year treasury to inflation index note is at a recent new high of 216.5 bps.
–Dudley yesterday said that a gradual pace of tightening is still appropriate, though noted inflation still below target. Fed funds market is suggesting that 3 more rate hikes this year are becoming more probable. For example, FFF9 closed 97.77 or 2.23% vs current Fed effective of 1.69, so 54 bps. That’s a new high in the spread, and, of course, anything over 50 is a push towards 3 more hikes.
–While curve in general was steeper, I marked 5/30 at a new low of 31.4 bps. There is a continuous seller of USU 143 puts, another 12k yesterday, bringing total position to around 36k. At USU settle of 144-03 these puts are only about 5.5 to 6 bps out of the money. Other trades of note: buyer of 50k EDM8 9762p 0.625 to 0.65 (cover short). Seller 90k 3EM 9762p just over 2.0 (exit of long). And a new buyer of 20k 2EZ 9675/9650p 2×3 for 6, covered 06.5. Settled 10.75 and 5.25 so 5.75 in the 2×3 ref 9706.5.
