Getting ready for the (Chicago) deep freeze
December 22, 2022
–On Tuesday I noted that 2/10 rallied following the BOJ decision to widen the band/cap on 10y JGBs. I cited a downward sloping trendline from October 2021, that came in at -52. Yesterday 2/10 closed at -53, up another 5 on the day. Is it a change in trend? Maybe, and maybe not. But it’s worth noting that many back spreads in ED and SOFR broke important resistance levels. For example, SFRU3/SFRU4 settled -134 yesterday from a recent low of -155. Red/green euro$ pack spread attached, up 46 bps from the low on 12/6 (pre-FOMC) of -87.875. Of course, the pack spreads roll with the expiration of contracts; before the FOMC the red pack was Z3/H4/M4/U4 and now it’s H4 thru Z4 as Dec’22 expired. On a short term basis it’s better to watch treasury spreads
–Existing Home Sales plunged to a rate of just 4.09m units, near the lows of the GFC and covid. I guess without Blackstone, Zillow, etc. in the market to buy and rent, the market is seeking a new level.
–Heavy trade in both call and put flies in near contracts. Yesterday SFRG3/SFRH3 9518.75/9531.25 call spread spread traded flat 50k, buyer able to buy March. Recent high in SFRH3 is 9523.5, settled yesterday at 9518.0.
–Today’s news includes final Q3 GDP. Jobless Claims expected 222k.
