Curve springs to life as stocks surge
May 19, 2020
–The very front end of the market appears to be more stable after the stunning drop in libor over the past month or so. Three month libor was 0.3766 yesterday, comfortably settling in around 3/8%. EDM0 closed at 99.67, and the 9962.5 straddle has been consistently sold from 10 a few days ago down to 8 and 7.5 yesterday, where it settled. However, yields surged at the long end, with the thirty year rising 13 bps to 1.444% in front of tomorrow’s maiden 20 year auction (w/i was 1.23% at the time of futures settle). Of course, the explosive rally in stocks accounts for a large part of fixed income weakness, with SPX +3.15% to a new recent high and Nasdaq +2.4%. Moderna (MRNA) which announced a promising vaccine candidate sparking the broader rally, had traded below 20 in the middle of March and closed at 80 yesterday, a four-bagger in two months!
–The curve steepened with 2/10 notching a new recent high at 55.5. Twos rose 3.4 to 18.1 while tens jumped 9.8 to 73.6. 5/30 closed 107, just below the spike high of 110 in March. June treasury options expire on Friday. TYM0 settled 138-19 and TYM 138.5^ at 0’36.
–Fed fund contracts have substantially withdrawn their support for negative yields. The peak area of that curve is July’21 to Jan’22, where all contracts settled at 100.00 to 100.005. Peak ED contracts are still the first two reds, M’21 and U’21 which settled 99.775. New recent highs posted in ED calendar spreads from reds back. Red/green settled 10.875 and red/gold rose nearly 7 bps on the day to 48.875.
–Powell and Mnuchin testify before Congress today. Housing Starts were down 22% last and will likely be just as bad this time.
