Industrial smoothing
May 7, 2020
–An apparent catalyst for this morning’s stock strength is China’s reported increase in April exports of +3.5% vs an expected fall of 15%. Or, maybe it was Peloton’s earnings report. Or something else. I am not given to calling everything ‘fake news’, but this morning it seems to fit. ESM +44 at 2877.50 and CLM0 pressing yesterday’s high at 25.50, +151. Also worth a note that Turkish Lira is crashing to new lows.
–The main feature in rates yesterday was curve steepening to new recent highs. Two year was -0.6 bp to 17.8, while the thirty year jumped 8.6 bps to 1.412%. 2/10 closed at new recent high of 53 bps (up 6 on the day) while 5/30 rose 7.5 to 104 bps, also a new recent high aside from a spike in mid-March to 110. Factors include crushing issuance plans from the Treasury and a lessening of deflation fears. Everyone knew that supply is coming like a tsunami, so I’m not exactly sure why the market chose yesterday to take yields higher… Oh, of course, Illinois pulled a bond offering. Just before the inevitable downgrade to junk.
–FT has a headline this morning ‘ECB to resist German court order to justify bond purchases’ and further adds that four governing council members are warning of risks to the central bank’s independence. Actually I think the apostrophe should be moved to the end of the word banks. It’s not just the ECB that faces that threat. Could un-anchored rates at the long end be a result? Seems plausible. Also of course, China is warning that it might sell treasuries (to the Fed) as the US administration thoughtfully floats the idea of cancelling the bonds that China holds. “I’ve got an idea! We just won’t PAY the rent.”
