Crude lower, stocks higher
April 27, 2020
–Little change in rates on Friday, although the bias was for a flatter curve. 5/30 closed at a new recent low of 81 bps in front of today’s 2 and 5 year auctions. 7s are issued tomorrow. The ten year yield ended at 59.1 bps, down 2.2 on the day. Front end of the dollar curve was the star performer, with EDK0 up 7.75 to 9947.5 and EDM0 up 4.5 to 9960.0 as 3m libor fell to 88 bps. The May contract at 52.5 bps suggests that libor will come down more rapidly that previously thought. This morning EDM0 is up another 2 bps at 9962.0, just 38 bps. The high tick for the contract was on March 16 at 9976.5, but this has pretty much been the high since the subsequent pull-back. Interestingly, bitcoin made its low around 4500 in the middle of March, but is now at a new recent high 7780. ESM also near recent highs printing 2860, +30.5 on the day. The Bank of Japan said it would engage in unlimited QE and keep the ten year yield around 0. India’s central bank is calling for increased fiscal support. In a word, more, all to the benefit of equities.
–Implied vol in dollars was crushed on Friday, with 5.5-6.5 bps being lopped off long green straddles. EDM22 9962.5 straddle settled 49.5 on Thursday, and on Friday 44.0, and that’s with futures unch’d at 9967.5. TY vol is back around 5%, the last couple of times it dipped to this level it was a buy.
–June WTI crude prints sub $15/bbl this morning at 14.55, down 2.39. The May expiration with negative prices has made participants in that particular market keenly aware of downside risks, as opposed to some other financial assets that have been ‘saved’ by the authorities. I don’t know if the grand re-opening will instantly serve to work off inventories, but I think it will go a long way. As soon as it gets slightly warmer in Chicago, the ‘stay indoors’ orders are going to be completely ignored. Here’s a clip of a protest in Sacramento, CA from a few days ago.
