while we slept; 3mo TBILL auction tail? short YES but not short enough (block mania!)
Good morning…
WSJ reports the Fed may raise 75bp this week.
(BBG John Authers visual updating what I noted this past weekend)
ZH: One Bank Spots More Bad News: Buyback Blackout Begins Today
… An index that measures S&P 500 companies buying back their stock has sunk to the lowest levels since early 2020.
AND we’re back … as an admitted and former card carrying member of Team Transitorian, you are NOT — repeat NOT — going to see any I told ya so here. Never WAS my style and certainly not about to become it.
I’m here, just watching, calling things as I see ‘em and poking fun — of myself and others on Global Wall Street — to the best of my somewhat limited capabilities now that I’m no longer ‘in the game’.
That said, hey now, how about that 3mo TBILL auction — 11bps tail? Here, thanks to friends in low places WITH a Terminal, are some TBILL visuals.
1d
5d
1y for some further context
Again, grateful to those with a Terminal and willing to share AND for their friendship over the years…
I’m told that 9bps tail was biggest tail since Lehman bankruptcy and at risk of overstating things (or making comparisons that have no doubt been filling your inbox before this), that is as large a sign of the scarcity of liquidity as there is (which I’m aware of). CONTEXT of that daily move,
Furthermore, it means to me, price discovery and the ridiculous moves (ie the DOWn Jones, RISK parody, 60/40) is not yet over …
I know I know, stocks and bonds are bid. Everything is fine.
I’m ALSO pointed towards the JPY/BRL cross (off over 3% at one point) signaling stresses in capital flows as carry trade and funding FAVES, this one should be kept close by to those who can (I’m not one of those chosen few any longer).
As a (former)rates jockey of sorts, I’m still drawn TO those which I traded / helped investors invest and by that I mean CASH USTs .,.. HERE are a couple of tweets / visuals from Matt Boesler / BBG
Back to our regularly scheduled programming … here is a snapshot OF USTs as of 722a:
… HERE is what another shop says be behind the price action, you know,
WHILE YOU SLEPT
Treasuries are higher and the curve steeper as prices and risk markets correct modestly after a savage 2-day rinse. DXY is UNCHD while front WTI futures are higher (+0.9%). Asian stocks held in OK despite NY's swoon, EU and UK share markets are lower though (SX5E -0.7%) while Es futures are higher here at 7am (+0.45%). Our overnight US rates flows saw a battle of wits in the front end of the curve after markets dramatically shifted pricing for 75bp tomorrow in yesterday's session. As our London colleagues noted, yesterday's 11bp tail in the 3mo bill auction may have been the largest on record- underscoring the unstable state of play in short rates. We count 5 FV and TY blocks traded overnight- fewer than yesterday but still elevated (see attachments). The same goes with Treasury turnover which was about 160% of average overall-- elevated but less so than yesterday.… US news: The Portfolio Balance Channel cuts both ways: Bull market winners drag S&P 500 into bear market WSJ US rates just had their biggest 2 days since 1987, jolting global assets BBG Market rout evokes memories of trading before Lehman blew up Yahoo After the 75bp dam burst yesterday afternoon (WSJ), a flood ensued FT Fed officials beginning to signal that a higher unemployment rate might be a necessary consequence of their inflation fight WSJ (though Powell said as much during the March 16th press conference Q&A in his "Tight to- to an unhealthy level, I would say" chat about the JOLTS/unemployed imbalance). Inflation could mean the highest cost-of-living adjustment to Social Security since 1981 FOX The 'servant economy' faces a reckoning FT A bipartisan push in Congress for new government powers to block US investments in China WSJ The Biden administration leans toward easing some of Trump's China tariffs Axios
… and for some MORE of the news you can use » IGMs Press Picks for today (14 June) to help weed thru the noise (some of which can be found over here at Finviz).
From the inbox and intertubes … where nothing really seems to matter (until at such a time that it does, and bigly), ZH for example
Japan On Verge Of Systemic Collapse With "Dramatic, Unpredictable Non-Linearities" In Financial Markets, DB Warns
…. As Deutsche Bank's George Saravelos shockingly calculates in a post this morning titled "The printer is on overdrive", and available to professional ZH subscribers, if the current pace of buying persists, the bank will have bought approximately 10 trillion yen in June. To put that number in context, it is roughly equivalent to the Fed doing more than $300bn of QE per month when adjusting for GDP!
(I’ve taken liberty to add LINK to the note)
In other news … which you’ve not enough time and mental capacity to care about at this juncture, the sellside points out the mkt is
CitiFX: Short but Not Short Enough
US Thematics
New shorts and covering with bearish build over the week - short momentum, short side focus.
fast 1m ($31m short /35bps profit vs $3 long / 34bps loss)
medium 3m ($61m short / 40bps profit vs $5m longs / 30bps loss)
legacy 6m ($142m short / 58bps profit vs $6m longs / 37bps loss)
10Y: one sided shorts (at $14m / 80th percentile) with short 37bps in profit with short momentum in control
=> fast 1m set has shorts onside below 118-00
=> medium 3m setup has shorts onside below 118-30
=> TY put pin risk at 116-00 but not that much support below that vs profit start to erode above 116-20
30y: Light shorts (at $6m short / 75th percentile)
=> short onside below 158-30-00 (18bps profit) vs longs offside above 155-20 (8bps loss)
… FLOW THOUGHTS
The market was short into the strong CPI print in US, but clearly market expectation have changed (i.e. the FED will be going by 50s for the foreseeable future) driving an aggressive cheapened across all asset. Post the print, this sell-off has been lead by the front end and this is where the stress are but why the aggressive moves further out along the curve?
Firstly this is a VaR shock with rising volatility AND rising cross asset correlation close to the historical highs driving market participants to cut risk limits which is impacting market liquidity - we see a large decline in market depth and rising TCosts across all assets but though poor it is not at historical extremes seeing during Covid.
Secondly the market is not short enough into the cheapening in fast 1mth and medium 3mth setups (certainly in the US) and was mildly long in Stirts (USD) but Europe was better positions (extreme position / extreme profits concentrated across all horizons). In curves, again market was not fully positioned for flattening particularly at the long end in both UST and Europe. Where next - short moment clearly dominates and ahead of FOMC little appetite to fade this move…
…Flows concentrated in futures? Yes
Block mania? Yes, flows over the last couple of days at recent extremes ($16m DV01)
Where are shorts? Everywhere but not short enough in USTs
Short. But. Not. Short. Enough.
Now as you consider whether you / market is currently ‘short enough’, an economist asks / answers,
Do market moves matter economically?
Markets face a serious inflation problem, namely pundits desperately inflating their Federal Reserve forecasts. Consumer price inflation data was higher than expected, but the Fed does not (with good reason) focus on CPI. A quarter of US CPI is in disinflation or outright deflation—in areas where Fed policy has an impact. May producer price inflation data is due; the consensus expects stability. The Fed is likely to be more measured than manic in this week’s policy tightening.
Equity markets are in “bear market” territory—the label has no economic significance. Do equity losses matter economically? Less than might be thought. Barely half of US households own any equity. Ownership is concentrated in higher income households which have savings stockpiles, limiting any negative “wealth effect” on consumer spending. More interesting is whether corporations change hiring or investment after equity moves…
I know. Shocking, right. What did you think an economically minded individual would say…? Did you really think he’d add fuel to the fire? Not unless he has been thinking about a career change…
From one economist asking if MARKETS matter to another asking about RATES impact on financial conditions…
Now with the impact on financial conditions in mind, same firm has moved its fed call because of the WSJ story.
An article in the Wall Street Journal by Nick Timiraos reported that Fed officials are likely “to consider surprising markets with a larger-than-expected 0.75-percentage-point interest rate increase at their meeting this week.” The article is a departure from another article that Nick Timiraos published yesterday that characterized such a move as “unlikely.” Our best guess is therefore that the article is a hint from the Fed leadership that a 75bp rate hike is coming at the June FOMC meeting on Wednesday.
We have revised our forecast to include 75bp hikes in June and July. This would quickly reset the level of the funds rate at 2.25-2.5%, the FOMC’s median estimate of the neutral rate. We then expect a 50bp hike in September and 25bp hikes in November and December, for an unchanged terminal rate of 3.25-3.5%…
Goldilocks NOT alone. Nordea,
Fed Update: 75bp hike seems most likely after WSJ article
After an article in the Wall Street Journal by well-informed journalist Nick Timiraos, it seems highly likely that the Fed is planning to hike by 75bp tomorrow. Rate markets are well prepared for such a move. The USD could strengthen somewhat more.
Finally, in a section — the end — typically reserved for some levity and a cartoon before hitting send, well, a response TO Jan 6th ‘hearing’ … ZH "Our Country Is In A Nosedive" - Trump Issues 12-Page Rebuttal Of "Sham" Jan6 Committee Investigation
… THAT is all for now. Off to the day job…