Last week was spectacular with no gains in any positions:
> gilt outperformed bund, check
> flatter eurodollar durve with less curvature in ED4-ED8-ED12, check
> EM currencies beaten, check
> NOK is still failing to appreciate despite the oil prices, check
> EURCZK, EURUSD, bund swap spread, ER fly, BA M9 all around zero pnl
10y AUd bond futures look interesting now at 260 bps. Yield dropped over 20 bps over past two weeks with weak CPI and weak retail sales numbers. At this stage with weak CPI I'd expect bull steepening because the question for the central bank is how soon and not what direction, but instead we had bull flattening. Pushing 10y down 20 bps while removing only 16 bps of tightening in red 90 day bills looked excessive.
Behind the weak CPI there was higher non-tradables inflation and labor costs growth. Over the past six months unemployment went down and participation rose, so this is more for a case of bull steepening. Among the negatives is a few points fall in PMI's over the past 2-3 months, though.
Media headlines suggest the EM currencies were beaten because of US hike concerns, but this looks rubbish to me. Red eurodollars or 10y haven't moved much, EUR or JPY did not notice that either. MXN, BRL, TRY, ZAR, all four have problems. In MXN the "free-market party" wants to prescribe car makers where they should source their components, in BRL congress is busy unarming the constitutional court instead of passing the pension reform, in TRY central bank independence is under threat at the time it's needed the most and in ZAR economic looting never stops. I expected that looting would quiet down after KPMG was caught assisting big scale corruption, Supreme Court reinstated charges against Zuma and all the Eskom stories, but looks like I was wrong. I am surprised how patient Moody's have been with their IG rating. That said, ZAR looks cheap, yield is good, so happy to keep holding.
For some reason petrocurrencies don't want to appreciate. NOK, RUB, CAD all failed to strengthen over the past month. The problem is finding something expensive to trade against CAD and RUB. There is enough short EUR exposure and shorting USD doesn't look like a good idea to me. AUD, NZD, JPY look fairly valued to me.
