Rates edge higher going into Dec Treasury options expiry
November 23, 2023
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–Rates edged a bit higher Wednesday as U of Mich inflation expectations were higher than projected with 1y at 4.5% from 4.4% and 5-10y at 3.2, same as last but expected 3.1%. A Rainbow Bridge car bomb (yes, it sounds like a politically acceptable cocktail order, but was an actual explosion near Niagara Falls) was dismissed by the market, whether terror related or not. Ten year yield essentially unchanged at 4.414% while the weakest SOFR contract, SFRZ4 fell 4.5 bps in price to 9557.0. 2/10 at a new recent low -49 bps. [buy area]
–This morning yields are a bit higher going into today’s December treasury option expiration. TYZ3 settled 108-26 and is now 108-14 while USZ3 was 115-28s and now 115-00. News today includes S&P PMIs: Mfg expected 49.9, Services 50.3 and Comp 50.4. Next week’s treasury auctions are front loaded: 2y and 5y on Monday and 7y on Tuesday. Jan WTI (CLF4) had a wildly large range Wednesday over $4 (77.97 to 73.79) and is currently 76.70, down 0.40. OPEC+ meeting has been delayed by a few days.
–Turkey in the news but not the pardoned one. The central bank raised rates to 40% to support the lira. Might as well take this opportunity to look at Greece yields, as the 10y is just 3.87%, 60 bps below the US and just 122 over Germany. The yield spread at the beginning of 2012 was 3500 bps.
–I also took a look at Gold vs Palladium with the latter trading at a discount of $934/oz to the former. That’s nearing the 2012 low of 1142 discount. Of course, as a ratio, gold is now nearly 2x more valuable as palladium while at the start of 2012 it was 3x. 2012 was when Draghi uttered his famous line, “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” From that time forward, gold weakened. But there’s no Draghi on the world stage right now…
