TGIF
Dec 20, 2019
–At futures’ settlement, yields were marked slightly lower on the day, with tens down 1.2 bps at 3:00pm to 1.908% vs TYH 128-10. However, the last two hours of trade saw TYH fall to 128-05, and the current price is 128-00. Curve continues to grind to new highs, with 2/10 at 29, and red/gold pack spread is at the exact same level (+1.125 on the day). Both FFF0/FFF1 and EDH0/EDH1 settled at -20, leaning towards one rate cut next year. Vols remain under pressure going into the holiday shortened week.
–Interesting note on Reuters that the US is planning to stockpile rare-earth minerals for military applications. I’m pretty sure that rare earths aren’t a component in CPI, but a general psychological shift toward hoarding, should it become more pervasive, may tend to have an influence on prices in general. In some ways it’s also probably a net negative with respect to the arms race. Not related, but President Xi is skipping the Jan 21-24 Davos confab, dashing hopes for a meeting with Trump.
–Potential for a washout in fixed income today. Yesterday’s bounce was typical against previous lows from mid-November. However, it fizzled. There is likely to be some position squaring in front of the holiday, and Jan treasury options expire a week from today (92k open in Jan 128 puts). If I’m long fixed income and taking next week off, I might find it prudent to pare back.
–I had never heard of this, but a friend sent me a note on the Rydex ratio, unsurprisingly pointing to more froth in equities currently than during the dot.com episode. The Rydex ratio measures assets in bear and money mkt funds relative to bullish and sector funds…so it’s not subjective. https://www.marketwatch.com/story/if-you-buy-into-warren-buffetts-advice-to-be-fearful-when-others-are-greedy-then-get-ready-to-be-full-of-fear-2019-12-19?mod=home-page
