Q2 starts
April 1, 2020
–Not much net change in rates yesterday to end the quarter. Curve steepened slightly with 2’s down nearly 1 bp at 21.8 and tens +1.2 to 68.8. Block trades reveal illiquid conditions in treasuries. For example, yesterday 4700 ultra bonds traded on block at 224-00 as futures were about a point lower just above 223. One point in ultras is only a bit over 2 bps, but it just underlines lack of depth; WNM0 settled 221-28.
–The window is quickly closing for convergence to occur between EDJ0 (which is trading 98.86 or 1.14%) and 3m libor which set yesterday at 1.45%. 30 bps. As one client says, it feels like it’s rigged. Well of course it does…because it’s April Fool’s day. This basis is as clear a sign as anything of dysfunction in money markets. All asset values seem like they’re built on a bed of quicksand, why should the libor setting be any different? Sort of makes me wonder how the atm EDZ0 9962.5 straddle can be just 20.5 bps. Will it all get back to normal with permanently low rates?
–In 1943 deficit to GDP peaked at 27%. So, we’ve go that to shoot for. –Stocks lower this morning. An old friend who was a technical wizard in bonds told me that two equal highs separated by one day with a lower high is a sign of powerful resistance. On Friday, ESM had a high of 2634.50. A lower high ensued Monday, with Tuesday’s high at 2635.75. I am not going to be comfortable with longs until we have a couple of closes above 2636.
