Bear Flattening.Short End New Highs as Powell Endorses Front Loading. Nomura 75
Overnight saw new record high yields from 2 years to 7 years... 2 years hit 2.77, 5 years and 7 years hit 3.04, but 10 years did not break their previous high of 2.98 and long bonds did not come close to 3.03... Powell was seen endorsing front loading of rates.. While he did not specifically mention 50 for May, the market took it that way... And NOMURA ONE UPPED THE MARKET BY CALLING FOR 200 BASIS BY END OF JULY... 50 IN MAY, AND 75 EACH IN BOTH JUNE AND JULY.. That got the short end's attention... But since we got to the office, rates are starting to reverse about 5 to 7 better... 10 years are now unchanged while both 5 and 7 are back below 3%... We expect another choppy day as we go into the weekend... SHORT COVERING OF THE MASSIVE SHORT POSITIONS RECENTLY SET IN THE FUTURES MARKET WOULD NOT SUPRISE US.
Equities did a huge about face yesterday reversing over 100 S+P points after the Powell front end loading endorsement.... It was not pretty.... Overnight S+P's bottomed at 8.50 PM at 4362 and have now moved up 25 to 4386, still down about 4...We still think this market will be choppy... And while the absolute levels of rates should not be an issue, the way we get there could be a problem...25% of total S&P Gamma expire today concentrated around 4400 S&P
Credit spreads widened in both IG and HY... HY took out recent highs while IG maintained under 80 for now.. That did not stop 3 borrowers from coming to market to issue a little over 12 billion... Order-books were 3 x oversubscribed bringing the total for the week to 70% higher than expected at 51.65 billion from the 25-30 expected... New issue concessions were solid at only 3.2 basis... Corporate market new issuance is navigating the choppy treasury markets and soaring Fed speak.
Both Powell and Bullard were out yesterday endorsing higher rates... Bullard seems to be getting what he wants, front loading...WIRP is pricing in 3 50 hikes through July... As we said above, Nomura has the last two hikes at 75 each... 3% seems now in the cards for most of the actives.
Rates...NEW SUPPORT LEVELS...giving ourselves some room...after 2 years breaking 2.62, we are now moving support up to 2.97... 5 years after a 3.04 overnight high, is now 3.10... 10 years after a 2.97 high overnight is 3.01.. And long bonds at 3.125...