Bullard doubles down
February 15, 2022
–Skimming prices this morning, ES +57, Oil -2.80, Gold -13. TY -8.5. Hmmm, maybe Ukraine invaded Russia? Oh no, here it is, Russia is pulling back some troops from the border. The opposite reaction from yesterday’s intel that the invasion was taking place on February 16. Markets are bouncing around on questionable headlines, but at least Bullard’s consistent, he still wants 100 bps of tightening by July. At one point he said the Fed needs to “follow through and ratify the market’s pricing”. I still personally think the first hike will be just 25, but the two-year note rose another 8.5 bps in yield to 1.585% while tens only rose 4.7…new low in that measure of the curve to 40.6 (2/10). On the eurodollar curve, new high in EDH2/EDM2 to 58.25 and new high in EDH2/EDH3, the peak one-year calendar, to 144.75. Bullard also said he’d like to see the curve steepen from balance sheet run-off, but of course his front-loaded tightening comments are only reinforcing the flattening. Once again, in euro$’s the red/gold pack spread settled at a new low of -11.5.
–Fascinating report from Enduring suggests 2023 inflation of 3.8 to 5.5%. “While the Federal Reserve could change our minds about the trajectory by being more aggressive than we expect and/or by shrinking its balance sheet with purpose, we think there is at least as much chance of an increase in money velocity as of a slowdown in money growth.” Increase in velocity? Not something being talked about, but certainly possible. It’s the other side of the coin from Hoisington’s arguments, worth thinking about. Contact: info@EnduringIP.com
–Front end vol hit yesterday, on new buys of 30k each EDM2 9912.5/9862.5p 1×2 and EDM2 9900/9850p 1×2 (5.5 to 7.5 and 5.5 to 6.5) Settles were 7.25 in the former in and 8.25 in the latter vs EDM2 at 9870.0. In treasuries, there was a new roll of 40k, TYH/J 127c calendar for 28 to 29, settled 31 vs 125-31+ in TYH. Treasury vol posting new highs with TYM 6.1 and TYJ 6.3.
