Place your inflation bets
March 12, 2024
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–CPI is the big event today, expected 0.4 from 0.3 m/m, with Core 0.3 from 0.4. Year/year expected 3.1, same as last, with Core 3.7 from 3.9. Curve flattened yesterday with 2s up 4.8 bps to 4.532% and tens up 1.3 to 4.10%. The three year auction went well, going off at 4.256% vs 4.277 at the cut-off. Tens today and thirties tomorrow.
–There continues to be heavy buying of high-gamma weekly 10y puts. Yesterday it was mostly in TY week-3 (this Friday). Early buyer of 40k TY week3 110.75/110.25ps for 5, covered 111-15, 5d. Settled 5 (8 / 3) vs 111-19. Late there was a buyer in clips totaling 40k 111.0/110.75 put spd for 4, covered against 19.5 to 20.5, 6d. Settled 4 (12 / 8). TYM4 settled 111-19. Total OI in week-3 puts up 108k. It wasn’t uncommon to see some high gamma put buys before big economic releases, but recent activity is taking it up a notch. Feels like more than just short-term protection for a bond portfolio. In any case, 0-dte (or close to it) is making the leap from stocks to bonds. On a day when open interest fell in almost all other treasury futures, TY was up 30k.
–Kevin Muir (MacroTourist) notes that the inflation swap curve is raising forward inflation expectations. However, the ten year breakeven is well behaved, at 2.273 on yesterday’s mark at futures settle (range of 2.34 to 2.24 over the past month). Elevated shipping costs and crude oil/gasoline prices are likely keeping inflation in focus. However, retail sales are out on Thursday and may show waning consumer enthusiasm.
