June 23. Euro$ calendar spreads: One hike a year — or less

–Not much change in treasuries with yields down less than 1 bp across the curve.  The euro$ strip outperformed with reds +2.625 and greens +3.0.  The changes in spreads were rather small on balance, though perhaps even the slightest tilt of the market gives a few clues on sentiment.  For example, there was a buyer of over 150k EDZ7 9850/9837/9825p fly for 2.5, holding EDZ7 unchanged on the day, while more deferred contracts saw outright buying.  Therefore, all near one-year euro$ calendars made new lows, with EDZ7/EDZ8 closing at just 25.5.  In Fed Funds, the Jan’18/Jan’19 spread closed at a new recent low of just 21.5 bps.  Of course, last summer (before the Trump era) that spread had closed as low as 9 bps. Eurodollar calendars are squeezing down the odds of tightening.  And more deferred spreads have no fear of steepening as a result of balance sheet adjustments.  For example, red to blue pack spread (2nd to 4th year) closed near its recent low of 37.75, and green/gold (3rd to 5th) closed 34.75.  Under 3/8% for 2 year forward spreads.  Zzzzzzzz.

–The Dodd Frank stress test results held no drama.  Everyone’s going to be just fine when the sh-t storm hits.  Theory vs reality, but we’ll just have to live it.

–Sort of an interesting comment on CNBC by a guest in the context of stress test results and banking regulation.  I’m sorry I don’t quote the guest by name, but he said (paraphrasing) ‘if the Trump administration isn’t able to legislate, then it can affect policy through deregulation of banks.’  Provocative concept…though I’m not sure that it’s logical.  Let the banks engage in riskier activity and it’s going to provide the stimulus that a large infrastructure program can??  Well, the auto industry has layered on risk in terms of lending and attractive lease deals.  It HAD spurred activity,, but seems to be sputtering now.

–Bullard, Mester and Powell speak today.  July treasury options expire with TYU pegging the 126.5 strike.

*Note on open interest in EDZ puts.  9850, 469k +79k.  9837, 939k +133k, 9825, 859k +35k

Posted on June 23, 2017 at 4:45 am by alexmanzara · Permalink
In: Eurodollar Options

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