Big Buyer
November 30, 2023
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–Job Claims expected 218k from 209.
PCE prices 0.1% m/m vs +0.4, with yoy expected 3.0% vs 3.4% last. Core yoy 3.5% from 3.7%. Eurozone inflation printed 2.4%. Despite yesterday’s 5.2% Q3 GDP print, Bill Ackman’s comments during an interview with David Rubenstein sparked buying across the curve. Ackman said he thinks the Fed will be forced into easing earlier; the market expects somewhere around July and he thinks perhaps in Q1.
–Huge run-ups in rate contracts the past two days. SFRU4, settled 9554, +29 since Monday settle. SFRZ4 the strongest, +30 since Monday at 9588.0, SFRH4 +28.5 at 9617.0. 5yr note down around 19 bps to 4.22% and 2’s down almost 1/4% exactly to 4.643%. There were a series of BLOCK trades in SFRU4:
10k 9547
10k 9549
20k 9550.5
30k 9555
Open interest in SFRU4 was up 74.6k to over 1m contracts, now the third most on the SOFR strip. Total +121k, so almost all due to the big buyer in U4. Contract settled 9554.0 and this morning prints 53. Around 100 bps of cuts would support that price, which could well occur. However, I think Powell has every incentive to lean HARD against the market when he speaks Friday. As Waller said, the Fed would like to see more slowing in the economy (and by extension, employment) before loosening the reins of monetary policy.
–New lows in near SOFR 1y calendars. Dec’3/Dec’4 down nearly 14 bps to -125.5 and March’4/March’5 down 6 to -133. Last week the June’4/’5 spread had vied for most inverted, but yesterday it settled -119.5, actually UP 2.5 on the day and 13.5 bps higher than Mar/Mar. Price action suggests the market is moving the easing timetable forward. The most inverted 3-month calendar is M4/U4 at -36.5, pushed to a new low by the outright U4 buys. Three-month spreads below -40 are pretty hard to sustain.
