Growth questionable, but rate markets trade like a bear
Oct 16, 2019
–Rates pressed higher Tuesday and the curve steepened as stocks soared. A Brexit deal appears closer, supporting GBP and stocks, and of course, optimism surrounding a resolution to the US/China trade war is also a factor, though China is threatening to retaliate if the US passes a Hong Kong bill. The ten year yield is at a resistance level of 1.77%, but shows scant evidence of pulling back. Near euro$ calendars made new highs. EDZ9/EDZ0 is still the lowest one-year, at -34.5, +2 on the day, while EDH0/EDH1 settled -21.5, +1. 2/10 edged to a new recent high of 14.9 bps.
–There was a new seller of 20k TYZ 128.5/132.5 strangles early at 28 to 27, (settled 31, 23 and 8 ref 129-24+) but implied vol remained firm in tens. In short, rates are trading a lot like a bear market, notwithstanding this morning’s bounce.
–As expected Bank of Korea cut rates by 25 bps to match the 1.25% low seen through late 2016 and 2017. This move underscores weakness throughout Asia. In the US, the Cass Freight report summarizes activity as follows:
• With the -3.4% drop in September, following the -3.0% drop in August, -5.9% drop in July, -5.3% drop in June, and the -6.0% drop in May, we repeat our message from the previous four months: the shipments index has gone from “warning of a potential slowdown” to “signaling an economic contraction.”
North American Freight volumes negative year-over-year for the tenth straight month.
https://www.cassinfo.com
