For round three I want to look a bit more holistically at rates, especially in $ rates, where I believe there is tug of war between economics and flow. As I have been making the case, the U.S. economy is slowing at the same time oil prices are falling and China is deleveraging. Yet, in the past few weeks, $ rates backed up despite a break in cal'18 backwardation in the brent curve and a continued hammering of industrial metals in ferrous and non-ferrous. For me, this move in px in commods warranted a big rates rally as the ramifications for inflation and growth are quite apparent. (see iron ore v US ISM in last post). Of course the Fed getting June priced has had an effect on the curve as well, but the back end move looks to have more than just Fed mongering. On that note, I would be getting out of the 2s and silver shorts from last piece, as the market has reassigned almost 10 more bps to the ff curve for this year, which should be a peak at almost 1.5 hikes.
Post May 13
Post May 13
Post May 13
For round three I want to look a bit more holistically at rates, especially in $ rates, where I believe there is tug of war between economics and flow. As I have been making the case, the U.S. economy is slowing at the same time oil prices are falling and China is deleveraging. Yet, in the past few weeks, $ rates backed up despite a break in cal'18 backwardation in the brent curve and a continued hammering of industrial metals in ferrous and non-ferrous. For me, this move in px in commods warranted a big rates rally as the ramifications for inflation and growth are quite apparent. (see iron ore v US ISM in last post). Of course the Fed getting June priced has had an effect on the curve as well, but the back end move looks to have more than just Fed mongering. On that note, I would be getting out of the 2s and silver shorts from last piece, as the market has reassigned almost 10 more bps to the ff curve for this year, which should be a peak at almost 1.5 hikes.