Forcing negative rates
June 29, 2020
–The highest print for a FF contract has been 100.07 on 8-May, FFF’22. It settled that day at 100.005. The highest settle in that contract was 100.03 on 14-May. Current market is 100.01/02. The high trade in EDU0 was 9981.5 on 16-March. On 8-May it traded 9977.5 and is currently 9972.5/73 with a block of 20k having gone through this morning at 73. Libor has been hanging around 30 bps; EDU0 9975 c are 2.5/3.0.
–The high print for any ED contract has been 99.895, and that was for EDU’21 (settled Friday at 99.815). On Friday, EDZ’20 100.125 calls were bought for 1.0 (open int in the strike is 32k). The short end of the market is pressing the Fed toward negative rates.
–Chesapeake filed for bankruptcy. On 4-June it was around 14 per share. On 8-June it had a crazy surge to 77.50 and closed just below 70 that day. By 10-June it was back below 17. It started the year at 165, but low energy prices coupled with crushing debt doomed the company’s fortunes. On an aggregate basis corporate balance sheets are as debt-laden as ever. The Fed hasn’t been able to hit inflation targets forever, so now has buckled and is just buying corporate debt as the Covid crisis flares again. High debt and lower activity/prices are constricting features in the covid economy. The Fed has been able to squeeze equities up, but CHK is a sobering reminder of how it can end without constant support. By the way, ten-year inflation-indexed note, which represents the “real” yield, closed at -70.7 Friday, a new recent low.
–Dallas Fed Mfg today. It was 0 in Feb, plunged to -74 in April, was -49.2 last and is expected to rebound further to -22.
