Tuesday, 30 July, 2019
AUS rates-
A very Livermore type assessment of price action here but with TY ticking bid AUD focused traders seem reticent to be buying YM at these levels with volumes diverging between the two contracts and curve flattening moves likely exaggerated if more TY strength is to follow. And why not with the markets pricing of OIS strip looking exhausted without the aid of a ghastly CPI print tomorrow. 51bps by May20 is as good a psychological point of resistance as any.
SPS EFPs appeared to be a focal point today – bank strategy desks are jumping all over RED SPS EFPs now, an effective strategy for many past bill expiries. This has been less of an RV play and more a function of settlement so the more popular it becomes the more at risk these positions become. Only a matter of time before this fails terribly imo and adds to the incentive of the ASX to become cash settled in BB futures.
Given the difficulty in trading outrights at the moment if not long already (which RM very much is) – clients seem to be gravitating towards cross market spreads. NAB were out today recommending NZ/AUD 1y1y compression. XM/TY looks extreme @ -84 and obviously has inflicted some pain. I like compressing IRZ9/EDZ9. @ 1.17 its only a whisper away from the wides seen last year @ 1.215 which seems as good an entry point as any but the appetite for new risk seems low ahead of CPI/FOMC. Maybe that means more profit taking on longs and another reason for a tactical YM short here?
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