Big shots are just little shots that keep on shooting!
July 13, 2022
–Ten year auction a bit sloppy, wi was 2.94 just prior and came at 2.96%. Bid to cover soft at 2.34. Yield ended at 2.956, down 3.5 on the day. 2/10 anchored to the low, just under -8 bps as FFQ2 went 9767.5 offer late, pegging the July 27 FOMC to exactly 75 bps.
–CPI today expected 8.8% from 8.6% last, but Core expected lower at 5.7% from 6.0%. Late CLQ2 was 95.65, down 8.44 on the day. There was a rumor late yesterday of a headline 10.2% number which BLS denied. The Council of Econ Advisors has already warned that the number will be large, as it doesn’t reflect the recent decline in gas/oil prices. In a world of spin, maybe it’s not surprising that a high CPI number was “leaked”, (dare I say it’s almost admirable that the CEA is trying to get out in front) and maybe it’s not surprising that oil plunges just before Biden’s tete a tete with MBS.
–Well before the advent of electronic markets and automatic risk parameters, the exchange instituted a rule called “taking a shot”. There was a recurring joke…but not really a joke, about buying a one-way ticket to Rio before a big data release, and loading up on bond futures without the money in the account. Binary outcome: either a big move your way, and you gladly eat the cost of the airline ticket, or you disappear and leave the loss for the clearing firm. In those days, to be approved for exchange membership, (at least at the CME) two members had to guarantee you for $50k each. After that, the clearing firm covered losses. After that, all the clearing members of the exchange were on the hook. The ‘taking a shot rule’ said that if you didn’t have the money in your account to cover your day-trade, and you made a ton of money, the clearing firm was entitled to the profit. Good rule.
–It seems to me the entire world has now lurched into the ‘taking a shot’ mindset, just on a larger scale that circumvents the automatic electronic trading rules. I almost chuckled when I read the ‘whereabouts unknown’ story relating to the Three Arrows founders. Why, they’re in Rio!
