Moving on up
October 23, 2024
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–Yields continue to push higher with tens +2.5 bps to 4.202%. Every yield now over 4%. Two and fives are just over 4%, tens 4.20% and thirties 4.5%. Ed Bolingbroke of BBG put out a piece yesterday titled, ‘Cost to Hedge Against Treasuries Losses Soars to Highest of 2024’. Attached I created a chart with 30y (US) bond vol and the MOVE index. If I remember correctly MOVE is weighted 40% in twos, and 20% each 5s, 10s, 30s. The salient factor is that vols are reaching new recent highs with the increase in yields, supporting the underlying trend.
–The first FOMC of the new year is January 29. The Feb 2025 contract is ‘clean’…no meeting. FFG5 settled 9576 or 4.24%. Current Fed Effective is 4.83%, a difference of 59 bps. There are three meetings before Feb…Nov 7, Dec 18 and Jan 29. While easing expectations have been pared back, there are still at least two 25 bp eases fully priced. The highest FFG5 settle was only one month ago on Sept 24 at 9631 or 3.69%. So in a month 55 bps of easing have disappeared.
–Existing Home Sales this morning. Beige Book in the afternoon. 20y bond auction, which last went off at 4.039%. It’s now 4.58%.
–What fun is it if you can’t talk your own book? Hi yield ETFs HYG and JNK appear to be forming small head and shoulder tops. As an indicator of credit stress, spreads to treasuries have been rather tight, i.e. no real sign of tight financial conditions, let alone stress. Disclosure: I am long puts on JNK, because I think the move in yields, vols, supports an idea of wider spreads. Also, puts on these ETFs simply have no liquidity, so this is NOT a recommendation, just mentioning as something to watch in terms of general financial conditions.
From bigcharts.com
