Innovation blues
April 4, 2020
–A solid employment report contributed to a fierce sell off in near contracts. NFP rose 431k with an unemp rate of 3.6%. At the futures settlement, I marked 2s up 14.4 bps to 2.428% and 5s up 12.7 to 2.545%. New lows in most measures of the curve with inversions in 2/30 at -1 bp, 2/10 at -5.5 and 5/30 at -12.4. Eurodollar curve is imploding with the red/green pack spread (2nd yr to 3rd year) at -34.5. EDM3 settled 9668.5 (low point on the curve) and was trading 9663.5 late in the day. This morning it printed 9658.5 or 3.415%. I don’t think any treasury traded above this yield level in 2018 (recent peaks).
–Over the weekend Williams (NY Fed) said balance sheet reduction could begin as soon as May, and Daly (SF Fed) said that the case for 50 min May has grown. Given pricing, NOT going 50 would be a shock. Fed minutes on Wednesday.
–Cathie Wood tweeted that the Fed raising rates in this environment would be a mistake. Her ARKK fund was around 125 in November and is now 67. Companies with high hopes of becoming market leaders by borrowing to buy market share are getting crushed on the prospect of higher rates. You can call it innovation, but without a steady stream of capital, the value of innovation crumbles. Tiger Global reported a loss of 34% for the quarter. Softbank CDS have been on a 45 degree angle higher (though have pulled back somewhat as leverage issues are addressed). And then there’s Russia, with Jamie Dimon saying the associated loss could be $1 billion for JPM. We’re a little over a week away from earnings reports for banks to start being released.
