Non-profits saw solid demand…oh great
May 30, 2024
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–Both stocks and bonds weak. 7 year auction tailed by 1.3 bps at a yield of 4.65% but treasuries stabilized post-auction. On the day, the ten year yield rose 8.2 bps to a new recent high of 4.622%. Treasury rolls have been substantially completed with heavy trade yesterday. Of course, June open interest has plunged in every treasury contract as expiration nears. I’m not sure if there is anything to read into this, but AGGREGATE open interest fell across UST contracts. I.e. September futures didn’t increase anywhere close to June’s losses (if data on prelim report is correct). For example, TYM OI fell 556k, but TYU only added 473k. UXYM OI fell 353k but UXYU only rose 272k. Somewhat strange given a move to higher yields, huge supply issues and a jump in implied vol. (TYU4 atm 108^ 2’32 or 6.0 vs Tuesday atm 108.5^ 2’27 or 5.7).
–Today’s news includes Q1 GDP 2nd estimate at 1.3% from 1.6% with Price Index 3.1% and Core 3.7%.
Jobless Claims expected 217k
PCE prices tomorrow.
–Large new sale of 0QU 9550^ 51.5/52. Settled 51.5 vs 9551.0 in SFRU5. Breakevens approx 4% and 5% with 106 days until expiry.
Exit buyer of 20k 0QM/2QM 9600 call spread for 4.5 to 5.0, paying up for the 2QM calls. As noted over the weekend, SFRM5/SFRM6 spread has continued to decline as reds bore the brunt of selling given the Fed’s insistence that rate cuts aren’t necessary in the short term. On May 1, M5/M6 was -44, on Friday the low was -54.5, though yesterday it settled -48.5. Being short 2QM 9600c was a bit close for comfort with SFRM6 settling 9583.
–Just a couple of cherry-picked lines from Beige Book: (they’re all doing it…I just admit it)
Retail spending was flat to up slightly, reflecting lower discretionary spending and heightened price sensitivity among consumers.
Wage growth remained mostly moderate, though some Districts reported more modest increases.
Contacts in most Districts noted consumers pushed back against additional price increases, which led to smaller profit margins as input prices rose on average.
Nonprofits and community organizations cited continued solid demand for their services… [ I don’t like the sounds of that one…]
