Euro$ calendars portend a larger rate shift
Oct 18, 2019
–Rates edged slightly higher yesterday in spite of weaker than expected data with Housing Starts -9.4%, Ind Prod -0.1 and Philly Fed just 5.6. There was notable put buying in treasuries prior to the day session, with a new purchase of 55k TYZ 128p for 12. (settled 13 ref 129-29). During the day there was a buyer of 15k TYX 129.5/129 p 1×2 for 1 which appears to be a roll-up in strike as open interest fell in 129’s.
–In eurodollars, EDH0/EDH1 one-year calendar posted a new high of -20.5 and was -20 bid just after the settlement. Near one-year calendars have had a significant rally since early September, when this particular spread EDH0/H1 bottomed near -40. The takeaway is that forward expectations of actual rate cuts have declined, especially in the wake of QE lite. The March/March spread has made a complete round-turn from -20 in late July, to -40 in early Sept, to -20 now. However, treasuries are no where near the lows made in late July. For example, TYZ had traded 127-20 at that time and is now near 130. Does action in forward ED spreads portend an adjustment to higher rates in treasuries? Could be a good reason for some of the large put buys…
–China GDP was 6.0% vs 6.1 expected, a new modern low. Bloomberg reports that “The total number of Chinese onshore company bond defaults this year just equaled the record set for the whole of 2018.” And, as mentioned yesterday, the IMF says that global corporate debt could lead to the next crisis: “The $19 T in ‘corporate debt at risk’ amounts to almost 40% of total corporate debt in the eight economies studied.” We’ve been close to the BBB cliff in the US, but it never seems to spill over, in spite of WeWork, etc. Here’s a great tweet from Charlie Bilello indicating crazy valuation. “Beyond Meat’s market cap just passed Conagra. Conagra: Founded in 1919 (Duncan Hines, Slim Jim, Orville Redenbacher, Healthy Choice, etc…) 18,000 employees, $9.5 BILLION in Revenue. Beyond: Founded in 2009. Fake Meat, 383 employees, $95 MILLION Revenue.” Some guys in office tried a Burger King Impossible burger yesterday… no rave reviews.
