August 30. BTFD

-Beware the False Demagogue? Behold the Future Development? I know BTFD means something. I just can’t put my finger on it. Oh well, on to the markets.

–In the spirit of Brexit and the surprise of Trump’s election, markets responded to N Korea lobbing a missile over Japan for a few hours, and then initial moves fizzled. $/yen made a new low but rapidly snapped back. VIX jumped but reverted back to its comfort zone, closing at 11.68. Millions of lives altered by Hurricane Harvey with staggering loss of property and the market reverts to the Broken Window Fallacy. Or maybe just figures the Fed will never hike in the face of adversity.

–Yields closed lower on the day with tens -2.2 bps to 213.3. Red and green euro$ packs were up 2.5 and 3.0. Once again, new lows were set in many near calendar spreads with EDZ7/EDZ8 closing at 19.5. All one-year spreads are below 1/4% and forward ones are below 3/8%. The euro$ curve is NOT projecting forward growth and is NOT expecting inflation as a result of rebuilding efforts. Jan’18/Jan’19 FF spread closed at 16.5. On the other hand there was buying of some 200k out of the money Dec 5yr puts. FVZ 113.75, 113.5, 113.25 and 113p all bought for 1/64 (~50k each). Current DV01 of the FV contract is around $51, so roughly 19.5 bps per point. FVZ7 settled 118-165 with the cash yield 1.707, so the top strike is over 90 bps away, 2.60%.
–At the same time, the Green Sept 9825 straddle with just over 2 weeks until expiration settled at 10 bps in front of Friday’s employment data. Maybe, one day, there will be a big move. But ED premium isn’t forecasting this week.

 

Posted on August 30, 2017 at 5:28 am by alexmanzara · Permalink
In: Eurodollar Options

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