Basic commodities to cyberhacks
May 10, 2021
–Friday’s miss in payrolls of 266k vs 1 million expected caught the rate market leaning and sparked an instant rally in eurodollars. Greens, the third year forward, were the strongest on the board, closing +6.625, (pack price of 9917, or 83 bps). Near one-year calendars out to Dec’22/Dec’23 made new recent lows, with Sept’21/Sept’22 back to single digits, settling at just 9.5. Sept’22/Sept’23 also made a new recent low at 49.5, but the 40 bp difference between the two is another indication that the market doesn’t see much chance of rate hikes until late next year.
–While the 5 year treasury fell 2.7 to 77 bps, the 30 year bond yield rose 3.8 bps to 2.274%. 5/30 closed at a new recent high of 150.5, but has been in a range since February of 139 to 166. The ten year treasury to inflation-indexed note breakeven closed at a new high of 250 bps. Relative weakness in the long end is due to increased inflationary concerns, weakness in the dollar, and a concession for this week’s auction schedule, which includes $41 billion in tens on Wednesday and $27 billion long bonds on Thursday. Apart from the dollar depreciating against nearly every commodity, China’s yuan has taken out the year’s high and is now just above 6.41… seems likely to rally right through until the 100th anniversary of China’s Communist Party on July 1 to highlight China’s ascent.
–Several news sources have blurbs this morning about the sharp increase in iron ore prices (FT, BBG), and of course the cyber attack on the Colonial pipeline is at the top of the news cycle. From the most mundane commodity building blocks to cracking encrypted code for ransom, the risk of transitory price pressures seems to be on the rise. CPI on Tuesday with yoy headline expected 3.6, Core 2.3. PPI on Wednesday expected 5.8% with Core 3.7.
