Flatter curve going into Powell and 30y
November 9, 2023
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In the year 2525, if man is still alive
If woman can survive, they may find
In the year 3535
Ain’t gonna need to tell the truth, tell no lie
Everything you think, do and say
Is in the pill you took today
–In the year 2525, Zager and Evans
–Main feature of Wednesday’s trade was a flatter curve. 2y yield rose 1.7 bps to 4.932% and 10’s fell 4.8 bps to 4.521%. Ten year auction had minor tail, 4.519 result vs 4.511. New lows in a few near SFR one-year calendars, for example SFRM4/SFRM5 fell 5 bps to a new recent low of -105.5. The most inverted 1-yr remains H4/H5 at -111.5 yesterday. The Fed has remained steadfast that easing is not likely any time soon, a theme that Powell will almost certainly reinforce in comments today beginning at 2:00pm. Given the increase in bankruptcies and delinquencies, the idea of 100 bps of ease over a given year is fairly modest. It appears as if that’s led to more of a reach for longer dated paper, which flattens the curve and encourages stock market cheerleaders to blather on about the Santa rally, even as headwinds for future earnings pile up.
–Thirty year auction today. WI was 4.645% at futures settlement.
–Yesterday there was a buyer of 20k SFRZ3 9568.75c for 0.75 covered 9562, synthetic price 0.7. Over 100 bps away with a bit over a month to go, and remember one-YEAR calendars are only around -100. I checked SFRZ3 SFRZ3 9468.75/9487.5/9587.5 c tree and got flat bid for the two calls!! (Settles 1.50/1.25/0.50). So one could buy a call spread 7 out of the money, 18.75 wide and sell another call 100 higher for zero premium. Wow.
–In treasuries, the in-the-money put buyer was back, looks like he rolled ~45k Wednesday week-2 110 puts into Week-2 Friday 110 puts. The latter position settles tomorrow. Settled 1’44 ref TYZ3 108-105. (intrinsic is 1’43).
