That’s all folks!
Oct 31, 2019
–As of the 3:00pm settle, tens were down 3.9 bps to 1.794% and bonds down 5.6 bps to 2.272%. However, the rally continued after Powell’s press conference. The Fed cut another 25 bps and signaled a pause, pretty much in line with what eurodollar calendar spreads had been signaling. Nov FF settled 98.4125 or 1.5875%, just below the midpoint of the new 1.50-1.75% target. However, Nov/Jan FF spread settled -6.25, indicating just 1 in 4 chance of another ease in December. It appears as if the Fed’s hawkish lean caused steepeners to be exited, underpinning a rally in the long end. Implied vol was pasted with new lows across the treasury complex. Probably worth buying in front of tomorrow’s payrolls which are expected 90k.
–China Mfg PMI fell again, to 49.3 from 49.8, while Service PMI also declined to 52.8 from 53.6.
–In front of the Fed meeting there was relatively heavy buying of five-year calls through risk reversals. Last night there were a couple of blocks in the other direction in euro$’s. Buyer of 80k 0EF 9837p/9875c risk reversals, paying 2.5 and 3.0 for 40k each, buying puts. –Today’s news includes Q3 Employment Cost Index expected +0.7 and Personal Income/Spending +0.3/+0.2. Core yoy PCE prices expected 1.7% from 1.8%.
–All euro$ contracts between EDU20 (98.445s) and EDU23 (98.395s) settled between 98.495 and 98.395, an 11 bp band consistent with a FF target rate of 1.25 to 1.50%. One more cut, and then radio silence. That oughtta be a fun three years…
