Twos and Fives today
November 21, 2022
–Light volume Monday though red euro$ pack was -9.0 and greens were -9.375, with blues and golds -7.75 and -7.25. Red/gold pack spread hit a new inversion low of -75.375. 2/10 was -69.4 at futures settle, also a new low for the cycle. Ten-year yield to inflation-indexed breakeven made a new recent low at 225 bps. Two and five year auctions today of $42 and $43 billion.
–Bostic said that 75 or 100 more ought to be enough to rein in inflation, but interest rate futures are slightly lower this morning with SFRH3 printing exactly 5% (9500.0). Given current FF target of 3.75-4.0%, the market is ignoring Bostic, but IS heeding the Fed’s message of “pause, but no easing over 2023”. SFRZ2/SFRZ3 settled positive 0.5 (9545.0/9544.5), FFF3/FFF4 settled positive 26.0 (9562.5/9536.5) and EDZ2/EDZ3 negative 17.0 (due to turn embedded in libor).
–This guy thinks there could be an ease: Buyer of 50k SFRU3 9700/9800cs Friday for 4.25/4.5; settled 4.0 ref SFRU3 9515.5 (current print 9512.0). On Friday’s close, the most inverted 1-yr calendar is SFRU3/SFRU4 at -120.5 (9515.5/9636.0). Even with extreme inversion, SFRU4 is STILL 64 away from the 9700 strike (but of course the option spread is on SFRU3, 184.5 away).
–Coca Cola used to have the slogan, “The Pause that Refreshes”
Maybe the Fed will start using that one
