Copyright 2017 Investor's Business Daily Inc.
Key Financial And Commodity Futures
BY BLOOMBERG NEWS
Wall Street traders might not beshowing enough concern aboutlong-term price pressures.
West Texas crude oil has climbedmore than 35% from its June lowand this week touched a level un-seen in more than two years. Whilethat has nudged up traders’ expec-tations about consumer pricegains,market inflation-linked gaug-es known as break-even rates arestill pricing in a pace that’s belowthe Federal Reserve’s 2% annualtarget. Some investors warn thatmight be a mistake.
“The bond market is currentlynot discounting this inflation risk;they are mispricing it,” said BenEmons, chief economist and headof credit portfolio management atIntellectus Partners. “Producerprices will spill over into CPI,which will be lifted also by energyeffects. This is all a form of over-heating that may lead to higher in-flation.”
Emons said he’s overweight Trea-sury Inflation Protected Securitiesversus nominal Treasuries. Thegap between yields on nominalbonds and TIPS, the break-evenrate, predicts that the headlinegauge for U.S. consumer prices willonly increase at 1.95% over the nextthree decades.
And while the one-year inflationswap has seen an additional 0.3 per-centage point of price-gain pres-sure factored in since August, five-year five-year forward inflationswaps have barely budged. The lat-ter measure shows where traderssee inflation for the five-year peri-od beginning in 2022 and is regard-ed as a better long-run indicator.
The gap between market pricingand economic assumptions mat-ters. Inflationhas been theone mea-sure that has escaped the Fed’s tar-gets despite years of quantitativeeasing.As investors continue to bal-ance the prospect of further tight-ening in the face of low inflation, asudden shift in the price outlookcouldhave broadereconomicimpli-cations with some investors al-ready warning aboutthe risk of a re-cession.
The clearest sign yet that mostbond traders aren’t fretting aboutinflation is the relentless narrow-ing of the difference betweenshort- and longer-term Treasuryyields. Returns on longer-dateddebt tend to be more sensitive tochanges in interest rates and suffermore from inflation surges, so theflatteningof thecurve suggests ade-gree of nonchalance.
The spread between five- and30-year yields fell to as little as 77basis points on Wednesday, mark-ing the flattest curve since Novem-ber 2007, right before the start ofan 18-month recession. The differ-ence between two- and 10-year ma-turities is also close to the smallestin a decade.
Rick Rieder, global chief invest-ment officer of fixed income atBlackRock, says the curve is out ofwhack, and he points to signs of up-ward pressure in salaries as an indi-cator of price pressure.
Measures such as the AtlantaFed’s wage tracker and companyearnings reports suggest that “weare seeing real wage inflation,”Rieder said in a Bloomberg Televi-sion interview on Nov. 3. “Growthis going to be really solid, andwages are accelerating.”
S&P COMP. INDEX Dec 17 PRICE MO %F=84.8 %S=87.2 CLOSE 2580.50OPEN INTEREST 62385CME
MINI DOW JONES Dec 17 PRICE MO %F=74.7 %S=84.9 CLOSE 233.83OPEN INTEREST 154213CBOT
10 YEAR TREASURY Dec 17 PRICE MO %F=63.9 %S=73.3 CLOSE 124-22OPEN INTEREST 3193071CBOT
BRITISH POUND Dec 17 PRICE MO %F=42.8 %S=39.3 CLOSE 1.3209OPEN INTEREST 172970IMM
JAPANESE YEN Dec 17 PRICE MO %F=52.7 %S=39.7 CLOSE 0.8816OPEN INTEREST 271890 in 100thIMM
EURO Dec 17 PRICE MO %F=21 %S=17.8 CLOSE 1.1687OPEN INTEREST 437372CME
MINI NASDAQ 100 Dec 17 PRICE MO %F=95.2 %S=93.5 CLOSE 6314.00OPEN INTEREST 281834CME
US TREASURY BONDS Dec 17 PRICE MO %F=71.8 %S=74.7 CLOSE 152-10OPEN INTEREST 769975CBOT
US DOLLAR INDEX Dec 17 PRICE MO %F=67.8 %S=75.4 CLOSE 94.27OPEN INTEREST 48280ICE
MEXICAN PESO Dec 17 PRICE MO %F=56.7 %S=50.1 CLOSE 0.5196OPEN INTEREST 177247 in 10thIMM
SWISS FRANC Dec 17 PRICE MO %F=27.9 %S=20.8 CLOSE 1.0064OPEN INTEREST 81120IMM
EURODOLLARS Dec 17 PRICE MO %F=13.4 %S=15.7 CLOSE 98.46OPEN INTEREST 1712371IMM
COCOA Mar 18 PRICE MO %F=81.3 %S=69 CLOSE 2212.0OPEN INTEREST 131679ICE
GAS BLEND Jan 18 PRICE MO %F=93.2 %S=93.9 CLOSE 1.7961OPEN INTEREST 131525NYM
WHEAT Dec 17 PRICE MO %F=47.8 %S=41.3 CLOSE 4.31½OPEN INTEREST 203160CBOT
SOYBEAN OIL Jan 18 PRICE MO %F=70.9 %S=78.5 CLOSE 34.96OPEN INTEREST 119562CBOT
LUMBER Jan 18 PRICE MO %F=90.2 %S=87.5 CLOSE 459.60OPEN INTEREST 5514CME
CANADIAN DOLLAR Dec 17 PRICE MO %F=59.8 %S=42.8 CLOSE 0.7889OPEN INTEREST 143561IMM
ORANGE JUICE Jan 18 PRICE MO %F=92.4 %S=81.3 CLOSE 162.60OPEN INTEREST 6130ICE
COTTON 2 Mar 18 PRICE MO %F=72.6 %S=72.8 CLOSE 69.14OPEN INTEREST 109309ICE
SOYBEAN MEAL Jan 18 PRICE MO %F=28.7 %S=27.7 CLOSE 316.60OPEN INTEREST 104550CBOT
PLATINUM Jan 18 PRICE MO %F=72.2 %S=66 CLOSE 932.10OPEN INTEREST 70889NYM
NIKKEI 225 AVGS. Dec 17 PRICE MO %F=77 %S=85.3 CLOSE 22660OPEN INTEREST 40880CME
5 YEAR TREASURY Dec 17 PRICE MO %F=89.4 %S=86.3 CLOSE 117-00OPEN INTEREST 3091638CBOT
As Oil Rises, Bond MarketScorns Inflation Warnings
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Money RatesPrime Rate: .................................. 4.00
Base interest rate charged by major U.S.commercial banks on loans to corpora-tions.
Discount Rate:Primary ................................................... 1.75
Secondary ............................................. 2.00
Rate charged by Federal Reserve Systemon loans to depository institutions
Broker Call Loan Rate: ................ 2.50Rate charged on short-term loans tobrokerage dealers backed by securities.
Federal Funds Effective Rate: ....... 1.16Rates on overnight loans amongfinancial institutions.
Certificates of Deposit:1 month ............................................. 0.NA3 months ........................................... 0.286 months ........................................... 0.45
1 year ................................................. 0.80Interest rate paid by dealers for certifi-cates of deposit based on the duration ofthe security.
Jumbo CDs:1 month ............................................. 0.163 months ........................................... 0.326 months ........................................... 0.501 year ................................................. 0.81
London Interbank Offered Rate:3 months ............................................ 1.416 months ............................................ 1.61
1 year ................................................. 1.88The average of rates paid on dollardeposits.
Treasury Bill Auction Results:3-months (as of Nov. 6) ................ 1.1856-months (as of Nov. 6) .................. 1.30
Average discount rate for Treasury billsin minimum units on $10,000.
Treasury Bill:1-year, (as of Nov. 2) ...................... 1.46
Annualized rate on weekly average basis,yield adjusted for constant maturity.
INVESTOR'S BUSINESS DAILY FUTURES & BONDS WEEK OF NOVEMBER 13, 2017 B19
