evening wrap, may 21

market vibes

“You can lead a horticulture but you can’t make her think.” Dorothy Parker’s witty quip while playing a word association game at the Algonquin Hotel in the middle of the Roaring 20s.

In the markets

The feature of the day in New York was a 20-year auction with a 5.04% coupon that pushed the 30-year yield to 5.10%. The ten-year yield rose to 4.59%. According to Alex Manzara at RJO in Chicago, "It was only 16 billion, not much these days. Bid-to-cover was okay; a 1.2 bps tail." The 5% handle has a psychological impact, in my opinion.

The dollar rallied from its lows but barely. Stocks tumbled hard and made new lows after 3 PM. Precious metals slipped with a mild rally in DXY but recovered within minutes and continued to push higher as stocks made new lows.

CBOT long bond futures made new lows for the month and quarter but held five ticks above the 2025 low in roll-adjusted data. Volume was high.

Long bond open interest may look tame in daily data, but in weekly and monthly data (chart below), it implies formidable margin pressure on the long side of the book, including global pensions, insurance companies, and 60/40 portfolios.

Inconceivably, very few of the nation's 4,000 banks had hedged their treasury portfolios in 2023. I doubt any of them hedged after Powell gave them the BTFP "put," even though it expired in 2024.

So, quite a lot to unpack tonight: the stock market’s enigmatic anemia, a deep dive into gold and silver inventories and their potential to cause havoc if a full blown flight to safety unfolds, Bitcoin at the highs but not quite, and a weigh-in of straws on the camel’s back in the vibe…