Wednesday Macros - Had a early golf game yesterday.
Treasury Grind Continues.... Short Base Extensive...Supply Window
We said that the 10 basis point range for 5 years was .85-.95, 10 years from 1.62 to 1.72 and 30 years from 2.31 to 2.41... Two of those three lower ranges were hit , 5 years and 30 years... We are still very much bearish on rates and still think 2% 10 years are in the cards this quarter, but given the large short base in rates and given we are in the 13th day of an 18 day treasury coupon supply free window, we think it could go a bit further...Key today are 4 Fed speakers and the FOMC Minutes... The latter being more important given the Powell presser where he said that the Fed would pull back if employment improved... Well since the last Fed meeting employment has improved... And the expectation of 1-2 million a month payroll gains is becoming the norm... We will see if any metrics about Fed tapering are included...we doubt it for now, but tapering talk will start in earnest later this year.
Fed... Lately Kaplan of Dallas has been the most open and honest of the Fed governors...especially given his street background... This morning he was interviewed by Dow Jones... Here is said the Fed should pare back support as progress is made towards objective, that paring policy aid in the future is key to containing market excesses (bubbles), and that raising rates off near zero does not necessarily mean tighter...Kaplan speaks again at 11 am
Rates... Given the window of lack of treasury coupon supply until next week we can see 5 years getting to .81, 10 years first to 1.62 then 1.58, and long bonds 2.28...but do not get mesmerized about a bull flattening within a bear steepening move...5 and 10 years yields have fallen below their 7 week uptrend lines....Powell speaks tomorrow in an IMF panel... We think it will be more focused to global central banks stimulus and not particularly insightful for the rates markets.
Short interest in the 20 year treasury ETF, TLT has climbed to 20% of the shares outstanding... We think the recent treasury run has a limited amount to go further...
While rates have a little more to go there are plenty of landmines out there.. This morning a large Chinese dollar bond issue XS1422790615 got reamed... The Huarong Finance, a 900 million dollar BBB/A rated 5 year went down 10 points since Monday, 5 points today 5 points Tuesday ,raising the yield from 3.26% to 5.70... So there are plenty of land mines out there with A ratings...
