30Y Auction & Equities Waffle
US Yield Curve weaker
Overnight bids have faded in Equity land as the NY open came with sellers and 4170 and 12728 put the top in for now in the SP500 and Nasdaq futures respectively. In our subscriber only note last night we noted continued closes below 4182 in the SP500 are acting as a sign of weakness and a potential reversal more so than overbought consolidation here in the complex and we suspect a break and close below 4100 will put the sellers in charge for a thrust to 4030 the big JPM strike collar level:
As far as the US bond market today, we have a $21B US 30Y auction and after the stellar 10Y yesterday it looks as if dealers are scrambling to cover once again here pre auction as the 30Y OTR Cash is on fire driving the US 30Y basis out 15 ticks on the day and who ever is caught short…lord have mercy…
The US yield curve flattening is adding to the long end demand as the front end of the curve is very weak with the 2Y +0.4bp, 5Y -1.5bp while the 30Y is down -7bp:
When we check out the options in the equity futures for tomorrows expiration there isn’t any real premium skew so we don’t think players are staking any opinions here, it seems more like wait and see on which levels give way, Buy above 4182 and Sell below 4100 seems to be the mentality here with consolidation in between. The longer we stay pinned between the larger the move either way. Given the technical set up, we would probably believe there are better sellers up against that 4170/80 area with a stop on a close above that 4182, same thing with the 4115/4105 level stop being 4100.
At least that is something that makes sense here to us. The bond market is telling us a different story, one by which many are caught long yield curve in a reversion trade and we believe they are about to get taught a very hard lesson in central bank policy and Don’t fight the Fed. We too have been humbled enough to admit that the FOMC is pushing far harder than it ever has, and we believe it is doing so not out of their own great analysis, but rather their hand is now forced via the monster of massive proportions that they themselves have created by going 8x on the balance sheet in a decade and a half!
Ok that is it for now, we await the auction results!
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