August 29. The Last Straw
–So THIS missile launch by N Korea is the last straw? It’s all risk-off this morning, though stock indexes have not quite taken out recent lows. Interest rate futures, by contrast, have exceeded recent highs. Part of the move was evident even before the NK provocation, as the Houston storm and flooding also entered into the equation. As of yesterday’s close, many back month euro$ contracts had made new highs for the year (from EDZ8 back through the golds-5th year). The five year note for example, was 174 at the floor close, just above the low yield in June of 171.5. This morning it’s 169, even in front of the seven year auction today. EUR at a new high; $/yen near a new low at 108.63. Gold has added to yesterday’s breakout gain.
–While the ten-year yield only fell 1 bp during yesterday’s session to 215.5, the curve flattened with many euro$ calendar spreads making new lows. For example, EDZ7/EDZ8 made a new low for the year at just 22 bps. Reds to greens (2nd to 3rd year) closed at 17.625 bps. 2/10 treasury spread at 82.6. The curve is amazingly flat given the supposed narrative of a growing global economy.
–Implied vol edged lower in treasuries, though there is still program call buying of TYZ 129c. Settled 20/64 ref 126-235 with 20 delta; open interest in that strike is now 80k. I suspect there will be some reaching for higher calls (from the bunkers). Speaking of reaching, it was just back in springtime, in March, when bitcoin first exceeded the price of gold at around $1270. Now GCZ7 $1325 (new high for the year and up a solid 12% or so), while bitcoin is 4350, 3.3x the price of gold…
