Global bond rout
March 6, 2025
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–The on/off uncertainty inspired by the current administration appears to be resolving with risk assets paying the price. Stocks starting off on the back foot with ESH5 currently in the red about 66 points near 5785, down about 1.2%. Of course, less than stellar earnings also playing a part. The proximate culprit is a global bond sell-off led by the German bund. On Friday Feb 28, the yield was 2.40%. This morning, going into the ECB and a European emergency summit on defense/Ukraine, it’s 2.85%. ECB expected to cut 25. German 2/10 was 39 bps on Friday, now 63. I saw a clip by Doomberg expressing skepticism that Europe’s grand defense plans have much hope of getting off the ground, due to the limiting factor of not enough (green) energy.
(Example of poor earnings: MRVL, a chipmaker, down 15% this morning).
–ISM Services and Prices yesterday both higher than expected 53.5 (52.5 exp) and 62.6 (60.4). ADP was just 77k vs expected 140k going into tomorrow’s payrolls. NFP expected 160k. Largest trade yesterday was in TYK5 113.5 calls, with a total volume of 254k! Open interest fell 50k. Initial trade was a block sale of 85k at 21 covered 111-035, 22 delta. More sales followed down to 12.5k at 19 covered 111-025. Over 100k on the day. Huge buying over the past couple of weeks in lower strike TYK calls has reversed. TYM last price 110-21 vs 111-025s.
–Ten year yield ended at 4.263%, up 5.3 bps on the day. As of this note on Thursday morning, 10y yield is 4.296%. Curve a bit steeper at the close, with 2s up only 3.1 bps to 3.986. SOFR strip also steeper as bund weakness permeated the entire interest rate spectrum. SFRM5 -2.5 at 9595.5, M6 -4.0 at 9644.5 (now peak contract on the strip), M7 -7.5 at 9636.5 and M8 -8.0 at 9625.5. Worth noting is new high in yen, with $/yen now 147.91. The aggressiveness of the fall in $/yen doesn’t match what was seen in early August but the absolute level is similar. On Aug 1, low was 148.51, by Aug 5 it had plunged to 141.70.
