Nov 7. No matter who “wins”, budget problems loom
–Mad scramble to cover equity shorts as the FBI decided Clinton wasn’t any more careless and irresponsible than she was on the first pass. Likely means more of the same for markets in general, and underpins the idea of a steeper curve. Interesting link on Bloomberg this morning which notes increased interest costs as a percent of both the gov’t budget and the economy at large. http://www.bloomberg.com/news/articles/2016-11-06/obama-s-successor-inherits-a-bond-market-at-epic-turning-point
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www.bloomberg.com
Barack Obama will go down in history as having sold more Treasuries and at lower interest rates than any U.S. president. He’s also leaving a debt burden that threatens to hamstring his successor.
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–A win for Clinton tomorrow likely solidifies a hike in December. Indeed on Friday Fischer said he thought the labor market “is close to full employment.” On Friday Dec’16/March’17 ED spread closed at a new low of just 2 bps, as the market looks past Q1 for any chance of further tightening. Calendar spreads on the near part of the curve compressed relative to the back end, causing ED butterflies to decline to recent lows. For example, there had been a large trade in EDH7/EDZ7/EDU8 9 month fly at +4 a couple of weeks ago, this trade settled +1.0 on Friday.
–Though only a footnote due to the overwhelming influence of the election, Consumer Credit is released today. In August it was $25.9B, a sizzling SA rate of 8.5%. The release today is for September and is expected $18.7B.
