US: Corporate Credit Update: Investment Grade Risk Relief
Investment-grade corporate credit risk finally recedes after making new 2-year highs Monday. Relief may be short-lived, however, with stocks holding modest gains day after making new lows for the year: ESM2 currently trading at 4178.0 vs. 4069.0 low on Monday
- Investment grade risk measured by Markit's CDXIG5 index currently -2.129 at 80.761; CDXHY5 high yield index at 102.268 (+.403).
- Outperforming credit sectors (tighter or least wide): Energy (-3.3), Communications (-2.6), Health Care (-2.4).
- Lagging sectors (wider or least narrow): Financials Senior (-1.1) and subordinated (-1.2) followed by utilities (-1.6).
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US TSYS: Positive Start to New Quarter
New quarter underway with FI markets extending jobs-data lows, June 30Y bond futures through early Wed lows to 147-29 (-2-05), 30YY taps 2.5416 high before grinding higher around midmorning.
- Short end back to pricing in more aggressive/multiple 50bp rate hikes for year (216bp by year end vs. 220bp on Monday). Broad-based inversions vs. 10s: yield curves bear flattened -- 2s10s slipped to -8.135 low, 5s10s slips to -18.522 low.
- TYM2 currently at 122-07 (-21), above key resistance of 120-30+ Low Mar 28 and the bear trigger where a break would confirm a continuation of the downtrend and would open the 120-00 handle.
- Decent jobs data (431k vs. 490k est but Fed up-revision of 95k and unemployment rate drop to 3.6%) initially underpinned stocks with SPX eminis to 4502.0 second half low.
- Stock indexes traded mixed after the FI close, off midday lows to near middle of the session range. S&P eminis trading +4.75 at 4535.5, ESM2 well above key support of 4440.90 50-day EMA.
- Cross asset update, crude see-sawed in weaker territory (WTI -$0.88 (-0.88%) at $99.37; Gold -$14.34 (-0.74%) at $1923.42.
- Limited data next week, FOMC minutes release on Wednesday.
- The 2-Yr yield is up 12.2bps at 2.4564%, 5-Yr is up 10.7bps at 2.5671%, 10-Yr is up 5.5bps at 2.3932%, and 30-Yr is down 0.6bps at 2.4416%.
USDCAD TECHS: Path Of Least Resistance Remains Down
- RES 4: 1.2778 High Mar 16
- RES 3: 1.2699 High Mar 17
- RES 2: 1.2654 50-day EMA
- RES 1: 1.2593/2601 High Mar 28 / 20-day EMA
- PRICE: 1.2505 @ 16:34 GMT Apr 1
- SUP 1: 1.2430 Low Mar 30
- SUP 2: 1.2408 1.0% 10-dma envelope
- SUP 3: 1.2387 Low Nov 10 2021
- SUP 4: 1.2328 Low Oct 29 2021
USDCAD remains vulnerable. The pair traded through key support at 1.2451 Wednesday - the Jan 19 low. This has reinforced bearish conditions and extends the downtick triggered by the recent break of 1.2552, 76.4% of the Jan 19 - Feb 24 rally. The break lower opens 1.2387 initially ahead of 1.2328. On the upside, initial firm resistance is seen at 1.2601, the 20-day EMA. A break of this average would ease bearish pressure.
US TSYS: Eurodollar/Tsy Option Roundup
Robust volumes noted Friday, two-way on net as underlying rate futures traded weaker after the close -- but well off morning lows.
- Eurodollar options saw better volumes in 2- and 3Y midcurve puts as Reds through Greens (EDM3-EDH5) hammered -0.210-0.170 on the day as pricing of more aggressive rate hikes resume.
- Salient trade includes 12,000 short Apr 96.75/96.87 put spreads and 10,000 short May 97.25 puts vs. 5,000 97.50 puts. In 3Y midcurves, paper bought 5,000 Green Jun/Sep 94.50 put strip, 84.0 covered
- Treasury options saw better two-way call trade as underlying futures managed to bounce off early session lows (still weaker by the close amid broad-based yield curve inversions.
- Highlight trade included a buy of 25,000 TYK 122 calls, 49 vs. 121-25 followed by sale of -20,000 TYM 123 calls, 52 later in the session. Tsy 5Y call highlights included a scale buyer of over 42,000 FVK 114.5 calls, 20.5-23 and over 12,500 FVK 115.5 calls, 6.
