Jan 18. Curve falls to flattest of this year
–Yields fell yesterday and settled near the day’s low with tens down 5.6 bps to 232.4. The curve flattened with nearly all eurodollar calendar spreads posting new recent lows. 2/10 treasury eased 2.4 to end slightly higher than 117. The peak one-year spread is EDH17/H18, March/March, which fell 4 bps to just 52.5. All other year spreads are below 50 bps, indicating market perceptions of just two Fed hikes per year. The red/green pack spread (2nd to 3rd year) is now only 32.75, and green/blue (3rd to 4th) is just 21. The dollar weakened with DXY trading 100.30 late in the day, re-testing or actually slightly through the old highs from 2015, as Donald talked it down. Gold jumped $20. Treasury implied vol firmed up; if rates start to retrace this last leg lower vols will probably slip back down.
–Today’s news includes CPI, expected +0.3 with Core +0.2, but yoy core is expected 2.1, the highest since mid-2014. Energy comps are likely to start biting over the next few months, as January and February of last year marked the lows in oil. Once again I would mention that the Bloomberg Commodity Index rose about 13% last year, and grains have been perking up over the past few sessions, with March Beans closing at their highest settle since last July. Other news includes Industrial Production +0.6 and the Beige Book summary for the Feb 1 FOMC. Yellen talks about the economic outlook at 3 EST.
