No Day
October 28, 2022
–The ten year yield fell back below 4%, easing 7.2 bps to 3.941% as anticipation of a Fed pause into next year grew. A change to the QT schedule could also occur at next week’s FOMC meeting. My bias is for a long pause rather than pivot to actual ease, but short end curves are telling a different story. For example, FFF3/FFF4 went from being positive to -5 as of yesterday’s close. More dramatic than that were new lows being posted in both EDM3/EDM4 at -83.5 (9503/9586.5) and SFRM3/M4 at -81.0 ( 9531.5/9612.5 chart attached). These are new low settles and at the lows for any one-yr calendars in this cycle. While FFX2 is fully priced for a 75 HIKE next week, these deferred calendars indicate a slightly larger EASE over the last half of next year. FFF3 settled 9560; closer to another 50 bp hike (9567) than 75 (9542) for the Dec 14 FOMC.
–Heavy buying of treasury calls yesterday, including 10k TYZ 113.0c for 35; settled 40 with OI +12k and TYZ 112.75/114cs bought in upper teens, settled 23 and added about 19k. In all, TYZ calls added 56k positions yesterday and TY futures rose another 74k in open interest, up 170k on the week. TYZ puts +19k. FV futures added 14k yesterday. Certainly feels like some sort of announcement is coming…
–ECB hiked 75 but signaled data dependence. It was AMZNs turn yesterday to disappoint the market by providing weak forward guidance; ESZ immediately dropped from 3820 to 3760. FT reports that big tech stocks have wiped out $800 billion in market cap.
–News today includes ECI expected 1.2%. PCE deflator yoy expected 6.3 with Core 5.2.
–I will not be at the desk today; back Monday.
