It’s 420. Chill
April 20, 2021
–New lows in near one-year eurodollar calendars as reds and the first two greens outperformed. A couple of examples: EDU21/EDU22 fell 1 bp to 12, having been as high as 22 in the beginning of April. EDH22/EDH23 settled 28 down 1.5, with an early April high of 42. While EDH23 and EDM23 were the strongest contracts on the board at +2, 9949.5 and 9936 respectively, net changes tailed off after that with golds (5th year forward) closing -2 on the day. The market may be reflecting the idea that if the Fed is going to taper first, it will take a while before the actual funds rate is raised (thereby supporting reds). The previous episode of tapering was announced in September 2017, with implementation beginning in October 2017 at $10 billion per month, $6b treasuries and $4b in MBS. Every three months thereafter the amount was raised by $10 billion. By the beginning of October 2018, the Fed taper was up to $50 billion per month. Of course, the FF target was being increased throughout the same period. It was in the beginning of October that Powell said “we’re nowhere near neutral”, and my personal opinion is that the incremental change in taper to $50b, along with verbalization of continued rate hikes is what sent stocks into a tailspin in Q4 2018. In any case, it was fifteen months of taper, and this time the Fed says taper first, hike later. Could the Fed announce implementation of taper in September? Would that correspond to rate hikes somewhere in early 2023?
–Bitcoin was shellacked over the weekend and the April future trades $55k as of this writing, having printed over $65k last week. On the other hand, July soybeans are 1455/bushel this morning, a new high for the move, having been around 1050 six months ago. Lumber is, of course, at a new high with LBK1 1326, having been 450 six months ago.
–As indicated above, the curve steepened, with 2/10 +3 bps and tens +2.7 to 1.596%. Modest steepening has continued this morning. TYM is gravitating toward the 132 strike as May options expire Friday.
–Florida’s governor DeSantis signed an anti-riot bill into law (no bail until court appearance if you riot), while Illinois’ gov Pritzker is sending the National Guard into Chicago for another round of peaceful protests, as beleaguered businesses again board up storefronts. No wonder lumber is in hot demand.
