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April 2, 2019

Risk Market Rally Pauses, Rates Fall


Treasurys resume rally. The economic data driven selloff appeared to peter out today, Treasurys rallying and yields falling across the curve by 3-4 basis points. The 10 year yield fell to 2.474% while the 10 year swap rate fell to 2.465%. Fed funds futures markets continue to price in a nearly 68.8% likelihood of a cut by next year, and a mere 5.8% likelihood of a rate hike. The MOVE index, a measure of interest rate volatility, has fallen substantially below its peak- but remains elevated:



April 1, 2019

Risk Markets Rally, Treasurys Fall on Positive Economic Data


Strong economic data out of world’s two largest economies helps risk assets rally. China PMI’s rose significantly, indicating an expansion in the manufacturing sector- leading to a 2.6% rise in China’s CSI 300 index. Meanwhile US factory activity rebounded and January retail sales were revised higher, helping the S&P 500 close up 1.2% to its year to date highs. The one negative on the day for US equity markets was the dramatic fall of Lyft- the ridesharing company closing below its IPO price in a potential warning sign for the other “unicorns” awaiting their...

March 28, 2019

Equities and Rates Rise Ahead of Inflation Data


Treasury rally gives back some gains, yields rising 3-5 basis points. The much needed breather came despite a Q4 GDP figure that was revised lower, and a disappointing inflation level implied by the GDP price index. Tomorrow’s economic calendar is full of important inflation data- CPI figures coming out in the Eurozone while US markets will get January’s PCE data. PCE is the Fed’s preferred measure of inflation, any significant surprise higher or lower could mean continued volatility in rates markets. The 10 year Treasury yield ultimately ended the day 3 basis...

March 27, 2019

Treasury Rally Resumes as Global Risks Reappear


Treasury rally picks up where it left off after risk-off move abroad. New Zealand’s central bank became the latest to walk back their growth projections for 2019, kicking off a flight to quality that accelerated after Turkey’s central bank stepped in to prevent Turkish banks from lending to foreign counterparties which in turn tripled the overnight lending rate to 1,200%. The flight-to-quality was evident in Europe where Germany auctioned off ten year government bonds at a negative yield, and in the U.S. where treasury yields fell 5-6 basis points across the curve...

March 26, 2019

Financials Break Losing Streak as Treasury Rally Pauses


Treasury rally takes a breather. Treasurys sold off and rates climbed 4-5 basis points across the curve. Despite that, Fed funds futures still imply a 73.5% likelihood of a rate cut by 2020- continuing the market’s recent trend of undershooting the Fed’s interest rate projections by 50+ basis points. 10 year yields climbed 3 basis points on the day but are still down 15+ basis points since mid-March. Swap rates have followed yields lower with five, seven and ten year swap rates now well below current 3 month LIBOR.



March 25, 2019

10 Year Yield Falls to Lowest Point Since 2017


Treasury yields continue to plunge, 10 year yield falling to lowest point since mid-2017. In June of 2017 the Fed’s benchmark interest rate sat at 1.25%- a full five hikes lower than the current benchmark interest rate. The remarkable convergence now has 10 year Treasury yields sitting below the overnight Fed Funds rate- with swap spreads such that the long end of the swap curve continues to trade below comparable term Treasury yields as well. The ~20 basis point drop in rates over the past week now implies an 80% likelihood of a Fed rate cut by 2020. Perhaps more...

March 22, 2019

Weak Economic Data Sends Yields Plummeting


Weak manufacturing data kicks off a volatile Friday, sending yields plummeting worldwide. The rally in Treasurys was kicked off by a contraction in the German manufacturing sector, which pulled German government bond yields into negative territory for the first time since 2016. Treasurys rallied even further after the release of weaker than expected US manufacturing and service sector PMI’s. Yields/swap rates fell 10-11 basis points across the curve. The Fed Funds effective rate now exceeds 7 year Treasury yields, a first for the cycle:



March 21, 2019

Treasurys Muted, Equities Rise in Aftermath of FOMC Announcement


March Madness? Fed Funds futures now imply a 48.8% chance of a rate cut by next January. The 10 year Treasury yield has now fallen over 70 basis points since its cycle peak in November of 2018, falling to levels not seen since January of 2018. The move lower in rates is not isolated to the U.S. either- German 10 year Bunds have a yield of 0.04% and Japanese 10 year government bonds have a negative yield of 0.05%. Nearly every government bond yield in the developed world is near the bottom of its one year range- illustrating just how far we’ve come from a...

March 20, 2019

Fed's Extremely Dovish Tone Surprises Markets


Fed keeps rates unchanged, updates forecast to include no hikes in 2019 while moderating their expectations for future growth. Treasury yields had already backed up ahead of the announcement, but immediately fell an additional four basis points after the Fed surprised with its dovish comments. The median “Dot Plot” shifted down by 50 basis points, and Fed Chair Jerome Powell also committed to an end to the Fed’s balance sheet unwind by September of this year. Treasury yields ultimately declined 8-10 basis points across the curve, swap rates following suit. The 10...

March 19, 2019

Yields and Equities Climb Ahead of FOMC Rate Decision


Treasurys continue to pare last week’s gains, with yields rising modestly ahead of FOMC rate decision and press conference. Most economists expect the Fed to leave interest rates unchanged when they announce tomorrow, but little else about  the results of the FOMC 2 day meeting is certain. Some expect the Fed to reduce their prior forecast of 2 rate hikes in 2019 down to 1 single hike, while still others expect a more dovish shift to no forecasted hikes through the end of 2019. The market is also looking forward to some greater clarity regarding the Fed’s plans to...


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