Powell, Financing the World
April 9, 2020
–Powell speaks today at 10:00 EST. FT runs the headline: Bank of England to directly finance extra government spending. (Might as well just overtly announce it, since it’s happening the world over). The US treasury has been busy auctioning t-bills at an average over $100 billion per day (according to a ZH article $569B last week and $369B in the first three days of this week). My title today is Financing the World, or FTW, which just points up how backwards things are…
–Yesterday the front end of the dollar curve reacted to both supply and to the stubborn 3m libor rate which refuses to decline in a meaningful way. EDM0 closed -3.0 at 99.37, weakest contract on the dollar curve, having traded as low as 99.305 early in the session. EDJ0 expires today and was trading 98.72 or 1.28% just before being taken off the board. Therefore EDM0 (now 99.36) still trades at an approx 64 bp premium in price to libor. The EDM0 9937.5^ settled 26.0 yesterday. While EDM0 was the weakest contract at -3.0, the reds (2nd year out) were the strongest performers, closing +3.0. From there the curve steepened, with greens +1.75, blues -0.25 and golds -2.0. Treasury curve reflects the same dynamics, with twos -2.8 at 25.2 bps and tens +3.0 at 76.3. There is more talk about a possible future increase in inflation, even though the immediate result has been disinflationary due to lack of economic activity. Against this thought, which would cause the curve to steepen, is the counter-argument that the Fed is going to engage in Yield Curve Control, thus capping long term rates. Ten year inflation-indexed note to treasury spread is creeping ever so slightly higher, at 119 bps yesterday.
–Jobless Claims today expected to be, well, big. Gold (GCM0 is trading 1706 this morning, up over $21/oz. A close above 1700 portends a quick move above 1800.
–April euro$ midcurves expire today. The last couple of days TY vol was 5% or a bit lower which has now defined a base. I marked TYM at 5.6 at the close. Exchange is closed tomorrow.
