Important auctions
December 6, 2021
–Friday marked the first day that back one-year eurodollar calendar spreads inverted, though the back of the UK curve has been inverted for quite some time. EDH’24/EDH’25 settled -2 bps. EDU’24/U’25 was the most inverted at -3.5. In the UK SFIH4/H5 settled -8. The market appears convinced that there’s a cap on the amount the Fed can hike, even though the peak rate in 2018 was 2.25 to 2.50%. Also, the prospect of self-sustaining economic strength and inflation has lost steam, even as Yellen warned of a wage-price spiral. Of course, a continued pare back of off-sides positions is likely a factor in pricing. Volatility and sparse liquidity have been evident for a couple of weeks, but a sparkling example occurred early Saturday morning when bitcoin plunged nearly 10% in an hour from 52.3k to 47.2k. On Friday the price was 57k and this morning it’s 47.5k.
–US Stock indexes have also been weak, but it’s worth noting some of the severe losses in Chinese stocks with DIDI the posterchild, down 22% Friday on its US delisiting. Other China shares that have made new lows include BABA, Tencent Music (TME), Weibo (WB), Vipshop (VIPS), Zhihu (ZH) and Hello Group (MOMO). Evergrande is unsurprisingly warning it may run out of money.
–New recent highs in treasury vol Friday as five, ten and thirty year yields compressed by 9.5 to 10.5 bps, with the ten-yr yield ending at just 1.34%. Every euro$ contract from EDZ’23 through EDU’26 (greens, blues and golds) settled in a 4 bp window from 9840.5 to 9844.5. This week brings 3, 10 and 30 year auctions. Though total size has been trimmed $8 billion from November’s offering, to a total of $111 billion, the amount of new cash being raised is larger at $89 billion. Treasuries are lower this morning, but it might be that more of a concession is warranted. Sloppy auctions this week could temper enthusiasm for accelerating the taper.
