Brief perspective on one-yr calendars

July 11, 2022

–Yields rose Friday on stronger than expected NFP of 372k.  Ten year yield up 9.3 bps to 3.095%.  August FF settled 9767.5, fully pricing a 75 bp hike at the July 27 FOMC.  New low posted in EDM3/EDM4 one-year calendar at -64.  The lowest one-yr calendar is EDH3/EDH4 at -71.  

–Just for a bit of historical perspective, the lowest I have seen for a one-yr on the 1^st to 5^th contract was -158 at the end of 2007 (most negative ever for a one-yr spread).   In 2019, 1st/5^th got as low as -90.  The low for any one-yr spread in this cycle was -76 on July 1, it was the EDZ2/EDZ3 spread.  Currently, that’s the 2^nd to 6^th contract; settled Friday at -61.5.  The lowest mark ever for 2^nd to 6^th was -95, which was also at the end of 2007.  Currently, EDH3/EDH4 is the 3^rd to 7^th spread.  At -71, it’s at a new low for that slot.  At the end of 2006 it reached -47.5, and the subsequent low was in 2019 at -39.5.  These spreads are good at forecasting upcoming eases.

–Three-yr auction today, followed by 10s and 30s Tuesday and Wednesday.  $/yen made a new high over 137 this morning.  

–Below is a chart of 2nd to 6th. Top panel is the two contracts, bottom panel is spread. The ferocity of the current move is unequaled.

• ABOUT:
  Former member of the CME specializing in interest rate options and yield curve strategies.

  The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results.