Aug 17. Increasing challenges
–The Barcelona terror attacks adds to a list of global tensions which have spilled into asset markets. Although flight to quality trades were muted as stocks fell 1.25 to 2%, yields declined, with tens down 3 bps to 219.6. The euro$ curve flattened, with reds to all deferred at new lows. Red/gold pack spread fell below 54 bps, down 2.375 on the day. Red/green pack spread closed just above 18.
–Surprisingly, there were premium sellers in rates. While volatility is correlated to the curve (flatter means less economic and and less price dynamism), a backdrop of vulnerable stocks and a pop in VIX makes sub-4% seem quite cheap in treasuries. Longer dated euro$ straddles fell 0.5 to 1.0 bp. Sept euro$ midcurves have four weeks to go, and straddles are as low as they have been. 0EU 9837^ 9.5, 2EU 9825^ 13.5, 3EU 9800^ 14.0.
–Next week is the Jackson Hole conference for central bankers, ironically titled ‘Fostering a Dynamic Global Economy’. Yellen is scheduled to speak next Friday at 10:00. The US rate structure is projecting a stagnant economy and idle Fed. Jan’18/Jan’19 FF spread closed under 1/4%, at 22.
–News is sparse today. Focus on stocks. Note that December Gold is up nearly $9 this morning above 1300/oz at a significant resistance area. It’s not bitcoin, but it could still have a powerful run…
