Piling on uncertainty
August 2, 2022
–Yields continue to decline with tens down nearly 4 bps at futures settle to 2.605%. With 20 minutes left in the day session the yield had eased to 2.59%. Volume was fairly light. Early large buyer of 10k TYX2 125.5c for 29/64’s. Expires 21-Oct and settled 29 vs 121-125 in TYZ2. Perhaps it was Nancy’s husband, as it’s reported she WILL visit Taiwan; TYU2 currently 121-25. (“Honey, I’m very worried about you making this trip.” *Dials cell phone. “Morty, buy me up to $5 million in treasury calls. Try not to be obvious.” DOD spokesman John Kirby tried to make a visit sound like a routine affair at yesterday’s press conference, while China has left no doubt there will be a response.
–New historic low in red/green euro$ spread which settled -41.25. 2/5 treasury spread is also at a new low (as mentioned over the weekend). It fell 1.2 bps today to -24. If snarled supply chains are partially due to chip shortages, and if uncertain supplies lead to inflation, and if Taiwan is a major supplier of chips, and if the Fed is determined to stop inflation at all costs, then this spread might have more to go.
