Don’t Worry About It. It’s technical.

Oct 21, 2019

–Curve steepened Friday with a solid bid in near contracts.  EDH0/EDH1 settled at a new recent high of -19, up 1.5 on the day.  The red pack closed +2.125 while golds were unch’d.  In treasuries, 2/10 closed 17.3, up 1.7 bps.  Some of this bid undoubtedly related to Brexit issues which are continuing.  This morning US fixed income has pulled back slightly.  With next week’s FOMC substantially priced for another 25 bp cut, EDZ9 is comfortably hanging out around the 9812.5 strike (9813.0s).  Oct/Nov FF spread settled at -19.75 (~80% chance of ease) while Nov/Jan settled -10.0.  However, there is still a lot of time between now and year end…  EDZ9 9812.5 straddle settled 16.0 which seems reasonable, but longs will likely have several opportunities to scalp around.  EDZ straddle would be a tough short to hold unprotected.  Having been 1.85% two weeks ago, last week SOFR was 2.00% on the 15th and 2.05% on the 16th.  Settlement dates for treasury auctions can still introduce volatility, as can other factors.  This week sees auctions of 2’s, 5’s and 7’s.

–Interesting article on ZeroHedge which cites JPM, saying that the Fed will likely soon have to expand the just announced bill buying program to include longer dated treasuries,  The article indicates that Bank of Japan’s balance sheet decline must be plugged by other foreign central bank buying.  The technical issues of central bank “plumbing” seem to be coming to the forefront on a more regular basis, and not in a routine way.  Thursday’s last ECB meeting with Draghi at the helm highlights the monetary divisions confronting Europe.  Cohesion and consensus at ALL central banks has fractured.  Oh, perhaps not in China, but evidence is growing that liquidity measures there are less effective at the margin.  The pendulum has now swung from austerity to more vocal calls for fiscal action.  Adding to a sense of uncertainty are the amount of protests percolating globally.

  https://www.zerohedge.com/markets/here-real-reason-fed-restarted-qe

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Posted on October 21, 2019 at 5:20 am by alexmanzara · Permalink
In: Eurodollar Options

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