Intervention
December 13, 2021
–Friday’s 6.8% yoy print in CPI caused little reaction; curve steepened slightly with the two year yield down 2.4 bps while the 30-yr bond rose 2 bps to 1.882%. It was more noticeable on the dollar curves as reds closed +4.25 and golds -3.0. Midcurve expiration was quiet. SPX closed at a new high.
–EDZ1 contract has settled this morning. Flatness in the eurodollar curve is even more pronounced as March contracts become the front on each pack. For example, red/gold pack spread using March as front settled just below 27 bps. (The previous one-month range using Dec contracts was 34.25 to 49). That’s the spread between the second year forward and the fifth, with barely 1/4% between them. With real yields severely negative and real wages also heavily negative, it’s astounding the market is signaling a “tight” central bank, but that’s what we’re faced with as we go into Wednesday’s FOMC.
–Of course, maybe the inflation data can be massaged a bit, as suggested by this BLS note: “Starting in January 2022, weights for the Consumer Price Index will be calculated based on consumer expenditure data from 2019-2020. The BLS considered interventions, but decided to maintain normal procedures.” Sometimes a gentle nudge puts “considered interventions” into play.
