Stocks near new highs
November 9, 2020
–With Biden declared the victor, stock index futures are near all-time highs this morning, with ESZ 3550 vs high around 3576 in September and NQZ 12283 vs 12444. While WTI crude and gold are both up as well, they have lagged; at the end of August CLZ was 44 vs 38 now, and GCZ was as high as 2075 in early August, now 1960. Ten year future is up small, retracing a bit of Friday’s loss. On Friday the curve steepened, with the 2yr now up 0.6 bp to 15.3, while tens and 30s were +5.0 bps to 76.8 and +6.6 to 159.8. This leaves both 2/10 and 5/30 around 5 bps off recent highs (recent highs 71.8 and 128.6 vs 66.5 and 123.7).
–Implied vol in treasuries continues to compress with Jan TY and US 3.0 and 8.0, about as low as they ever get. From Tracy Alloway of BBG today, “Yields on the benchmark 10yr treasury jumped to 94 bps on Tuesday before sharply falling on Wednesday, moving in a 22 bp range that JPM analysts point out is the widest since June.” Her note goes on to reference the Sept 2019 repo blow-up and comments from both Quarles and Powell about the Fed making sure markets function smoothly. Does smooth functioning mean no volatility? With option premium cut to the bone a natural shock absorber goes away. Liquidity could suffer as the result of the central bank owning a large chunk of the market while trying to stifle volatility. Treasury auctions 3s, 10s and 30s this week in size of $122 billion (54, 41 and 27).
