Ignoring Bullard
April 6. 2023
— ISM service was 51.2 vs expected 54.4, with Employment index 51.3 vs 54.0 last. ADP was just 145k. The strong data releases from February are in the rearview mirror; markets have reversed those moves. Jobless Claims today expected 200k. NFP released on Friday’s abbreviated session. CPI on Wednesday.
–Bullard speaks today at 10:00. A couple of days ago he said the Fed must continue to hike to stop inflation. Here is the market response: SFRM3/Z3 fell another 5.5 bps to a new low of -79.5 (9522.5/9602.0), a rough proxy for the amount of EASING being priced in the second half of this year. FFN3/FFF4 settled -80. Treasury yields continued to break lower, with 5s and 10s at their lowest levels since last September. At futures settle I marked 3.342% and 3.283%.
–Hey Bullard…you gonna let them talk to you that way? Because they’re saying you have no idea what you’re talking about.
–Midcurve April SOFR options expire one week from Friday. 0QJ3 9687.5^ settled 35.5 ref SFRM4 9685.0. The put settled 19.0. Seems like rather expensive premium. On the other hand, on 3/31 the low in SFRM4 was 9629. On March 8 the low was over 150 lower than now, at 9521. By contrast, further back on the curve, 3QJ3 9725^ settled at just 22.0 ref SFRM4 9726.5. If the Fed is closer to a pivot, the curve is likely to pivot as well, with back-end yields rising as flatteners are exited. Long put spreads on blues make sense in that sort of scenario.
