Steeper end to 2019. More to come?
January 2, 2020
–China cut reserve ratios for large banks by 50 bps to 12.5% yesterday, giving a jolt to equities to kick off the new year. Protesters have apparently pulled back from the US Embassy in Iraq, though that situation could easily flare up again.
–Friday featured slightly higher yields in a session where the big trade concerned liquidation of long TYG 129 calls. When all said and done, TYG 129/130c spread declined 84k in both strikes (the calls settled 17 and 5, so cs 12s vs 128-135). TYH0 lost 30.5k in open positions, a bit more than would be indicated by the exit of the 21 delta call spread. The ten year yield at the early floor close was 1.907%, up 1.4 bps on the day. New highs posted once again in many curve measures. 2/10 ended 2019 at its high of 35.2 bps. +2.6 on the day. Reg/gold euro$ pack spread settled 33.0, +2.125 bps, and 5/30 at 69.5, +2.7 on the day. One somewhat interesting note: the back end of the euro$ curve (and sterling and euribor for that matter) is where the steepness is. For example, EDH21/EDH22 (red/grn March) is 5.5 bps, but EDH22/EDH23 closed at a new high of 12.0. In sterling, L H22/H3 is 8 bps, and in euribor H22/H23 is 15.5 (ERH21/H22 is 12.0).
–Lows so far this morning in USH and WNH are 155-05 and 180-13, holding early November lows so far, of around 155-00 and 180-00.
–One other trade of note Friday was a new lottery ticket buyer of 30k 0EG 9887/9937cs for 1.0, ref EDH21 9844.0s. Keeping with the steepening theme, buying short maturities, selling long.
