Black Friday
November 26, 2021
–The day after Thanksgiving is known as black Friday, when retailers used to turn the corner for the all-important holiday selling season. Today, it’s about the new covid variant that threatens to ice the economic system (again). As of this writing, WTI is down 6% (CLF2) and mini-SP is down 2%. Interest rate futures have exploded higher, exacerbated by today’s December option expiration in treasuries, and thin conditions. Last night the plain vanilla TYZ 130.25 call was 10/15 ref 130-09 with absolutely no size being quoted. This morning the contract is trading 130-31, so calls are 46/64’s intrinsic. Good luck today.
–Wednesday saw renewed flattening with new lows in some of the back spreads. For example, red/gold pack spread (2nd to 5th year) gave away all of Tuesday’s steepening and closed 56.125, down a whopping 9 bps and a new low. 2/10 closed just below 100 bps, and 5/30 made a new low of 62.6, down 3.6 on the day. The first curve inversion (on settle) also occurred with these closing levels in blues: EDZ4 and EDH5 settled 9809.5 and EDM5 and EDU5 settled 9810.0. This is probably partially technical, with blue Dec midcurves having quite a bit of open interest…but inversion is typically a sign that monetary policy is on the verge of being too tight. There is nothing normal about this cycle, and thin conditions going into year-end after many liquidity providers have already had their faces ripped off isn’t going to help. For a dollop of added irony, I’m sure the Biden admin will take credit for the drop in oil prices, related to the tap of the SPR.
–It’s an early 12:15 CST close in rates and equity futures.
