US EURODLR FUTURES: Post-LIBOR Settle Update: 3M Marches Higher, Hikes Moderate
Lead quarterly EDM2 dips -0.0025 to 98.2275 after latest 3M LIBOR set' climbs 0.02543 to new 2Y high of 1.69043% (+0.06443/wk). Rate hike pricing moderates slightly out the curve stable: balance of Whites through Golds (EDU2-EDH7) +0.005-0.025 w/ Greens-Blues narrowly outperforming.
- Inversion holds to front Reds: low mkt measure of confidence in Fed managing a soft landing/avoiding recession has extended: Red Sep (EDU3) currently trading 96.56 vs. Red Jun (EDM3) at 96.46. Inversion starts to flatten out (dis-invert) around Blue Sep'25-Dec'25 trading 96.94-.935.
- Monday option roundup: Generally light FI option volume Monday, same for underlying futures (TYU2 <960k by the bell) despite yields grinding to the highest levels since early May (all over 3%: 5YY 3.0368%, 10YY 3.0380%, 30YY 3.1908%).
- No data to start the week (no Fed-speak either w/ Fed in Blackout through June 16). Markets pre-occupied with Elon Musk threat to pull out of Twitter bid due to lack of spam/bot documentation, and UK PM Boris Johnson confidence vote in late trade. Also public Jan 6 insurrection hearing that start June 9.
- No overarching theme to describe Monday's trade, just short term positioning and/or tactical plays, such as a sale of 10,000 TYN 117.5/118.5 put spds at 22 (ref 118-08.5) looking for yields to retrace off current highs. Simple directional plays via buying July 10Y 121, 121.5 and 121.75 calls from 4-2. Scant Eurodollar trade had paper selling 10,000 short Jun 96.62 puts at 19.5 vs. 96.45/0.85%.
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US TSYS: Yield Curves Bear Steepen, Focus on Fed over Jobs Data
Yield curves continued to bear steepen Friday, 2s10s session high of 43.067 back to early March levels as bond yields climbed to 3.2338% high -- last seen early December 2018. Relative calm end to the week for a NFP session.
- Tsy futures bounced higher briefly, scaled back amid steady selling after Apr NFP jobs gained more than estimated +428k vs. +380k est, avg hourly earning little weaker than exp at 0.3% vs. 0.4% est. Total down-revisions to Feb-Mar -39k.
- Fed out of blackout: limited react to essay published by Minneapolis Fed Pres Kashkari: Long-Term Real Rates Are Already Back To Neutral. ""If the economy is in fact in a higher-pressure equilibrium, that might indicate the neutral long-term real rate has increased, which would then require even higher rates to reach a contractionary stance that would bring the economy into balance."
- MNI interview w/ Richmond Fed Barkin: interest rate increases are not on a preset course and he would like to see interest rates on a path to normal that is as fast as feasible, backing this week's historic FOMC decision to raise the fed funds rate 50bps, while not ruling out the potential for a supersized 75bp increase if needed.
US: Late Corporate Credit Update: Back Near 2Y Highs Late
Investment-grade corporate credit risk has see-sawed back near new 2Y highs tapped early Friday, closing levels well off midday lows as stocks traded modestly weaker: S&P E-Mini Future down 30.25 points (-0.73%) at 4113.75
- Investment grade risk measured by Markit's CDXIG5 index currently +3.464 at 86.919 vs. new 2Y high of 87.321 around midmorning; CDXHY5 high yield index at 100.813 (-0.837).
- Outperforming credit sectors (tighter or least wide): Financials - subordinated (-0.2) followed by Energy (+0.4).
- Lagging sectors (wider or least narrow): Utilities (+1.4) followed by Technology and Consumer Discretionary (+1.3).
US STOCKS: Late Equity Roundup: Mildly Lower on Week
Equity indexes weaker into the close are off session lows, upper half of range SPX emini futures, ESM2 currently -30.25 points (-0.73%) at 4113.75 -- near week opener of 4146.25.
- Earnings cycle past the halfway mark, resumes Monday w/ Duke Energy (DUK), Tyson (TSN) before the open, Trex (TREX), Int Flavor/Fragrances (IFF), Cargurus (CARG) after the close.
- SPX leading/lagging sectors: Energy sector extends earlier gains (+2.91%) O&G consumables outpacing energy and equipment serving names. Utilities sector follows (+0.81%). Laggers: Materials sector holding near lows (-1.40%) w/ construction materials shares lagging; Communications sector (-1.30%).
- Meanwhile, Dow Industrials currently trades -97.15 points (-0.29%) at 32901.08, Nasdaq -173 points (-1.4%) at 12144.66.
- Dow Industrials Leaders/Laggers: United Health outperforms (UNH) +5.10 at 499.82, Chevron (CVX) +4.00 at 170.26. Laggers: Home Depot (HD) continues to sag -4.47 at 294.64, Nike (NKE) -3.62 at 115.01.
