3-Month Libor Assumptions – up 25 per hike?

Posted on October 16, 2018 at 10:35 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Oct 16. Front end weakness

–Yields rose across the board yesterday with tens up 2.2 bps to 316.1.  Front end contracts under pressure, a combination of an increase in the turn and libor/ois widening.  Early new selling in EDX8 contract at 9742.5-42, contract settled 97.4125.  Jan Fed funds were unchanged at 9762.0, while EDZ8 fell 2.0 to 9730.5, which caused a new high in the spread (EDZ8/FFF9) at 31.5.  There was a buyer of 20k EDZ8 9712/9750 risk reversals covered 9732 early for 0.25, bought calls.  Asymmetry to the market in near contracts as it’s perceived that nothing can cause faster and more aggressive hikes, but a large disruptive financial event could end or reverse the Fed’s tightening bias.  Having said that, the evaporation in option premium makes it seem as if the US curve is locked in cement.   The first two midcurve straddles in greens and blues fell 1-2 bps yesterday, with 2EZ 9675^ closing at 20.5.
–With regard to front end pricing, the Nov contract covers the 3 month period beginning 14-Nov.  The FOMC is 19-Dec.  There are 57 days in the contract at the ‘new’ rate out of 92 or near 62%.  Prior to the Sept FOMC, libor was 2.33 to 2.34. and just after was 2.37-39.  On a hike assume new libor of 2.38 + 0.25 or 2.63 (97.37).  Of the 25 bps 62% in the Nov contract is 15.5 bps, which would put the Nov contract at 9746.5 on 100% odds of hike (9762-15.5).  Yesterday’s settlement of 41.25 is a discount of 5 bps, and of course weakness in EDZ8 shows the same thing.  Turn pressure could worsen.
–In the past couple of weeks there has been heavy short covering of small otm puts.  Yesterday another 50k covered in EDH0 9575p, 1.5 paid vs 9675.5 with 10 delta. ​
Posted on October 16, 2018 at 5:16 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Self Reinforcing Tighter Conditions

Starting with a couple of charts.

What do these two have to do with each other?  Well, it’s pretty obvious, Italians are not buying new homes.  (I’ll be here all week).

Besides that, both charts, in a way, are real time reflections of financial conditions.  I cite Gundlach in the XHB chart because he menitoned carnage in homebuilders as a worry.  Actually, there are a lot of charts in both the US and across the world that show comparable stresses and percentage declines for a variety of similar and dissimilar reasons. For example, this weekend Draghi told the Italian gov’t to “calm down” and stop questioning the euro. However, the official stuff in the US isn’t registering concern.  For example, I looked at several Federal Reserve data series which purport to measure financial conditions.  Chart below shows St Louis Fed’s Financial Stress Index (blue) and Chicago’s National Financial Conditions (Red).  Both are below zero and trending down.  No problems, right?

Former NY Fed President Dudley outlined several variables related to financial conditions: Short and long term rates, the value of the dollar, the level of equities, and corporate spreads.  These are circular and dynamic indicators.  Movements in some of them eventually affect the others which have the potential to culminate in a 2008/09 self-reinforcing spike.  So when the Fed says they don’t want to rely exclusively on models, I suppose that the chart above – which contains model inputs and indicated little (and lessening) stress going into the financial crisis – is a reasonable argument for human interpretation and intervention regarding policy choices.

There was an informative Bloomberg article over the weekend regarding corporate spreads with excerpts below.

The result has been a surge in debt issuance in the lowest rungs of investment-grade—the biggest share of it driven by corporate acquisitions. There’s now about $2.47 trillion of U.S. corporate debt rated in the BBB tier, more than triple the level at the end of 2008. It now makes up a record 49 percent of the investment-grade bond market and has eclipsed the entire U.S. junk bond market, according to Bloomberg Barclays Index data. In 1993, for example, just 27 percent of blue-chip corporate bonds were rated at the BBB tier.

The worry now is that, with so many of those BBB ratings dependent on the ability of companies to deliver on their debt-cutting promises, any hiccup in the economy or exodus of investor cash will lead to a surge of downgrades to junk. That could lift companies’ borrowing costs substantially, adding new strains to those companies. And if it were to happen en masse, it could overwhelm the $1.3 trillion U.S. speculative-grade debt market and potentially cause the weakest borrowers to lose access to capital.

https://www.bloomberg.com/graphics/2018-almost-junk-credit-ratings/?srnd=premium

In 2007 it was adjustable rate and subprime mortgages which sparked the crisis.  In considering the path forward, the factors we have to be concerned with are inflation and rates.  I have used this quote from Albert Edwards of Soc Gen before, but I think it captures the big picture: “As the bond rout continues, the biggest call investors have to make is whether the break of the multi-decade downtrend marks the end of the secular bull market.  This is the big one.  Get on the wrong side of a new multi-year bear market in gov’t bonds and all investment portfolios will be shredded to ribbons, as bonds are the cornerstone of most equity valuation models.”

But it’s not just the price of capital, it’s availability and access.

A quick comment on inflation: Ben Hunt of Epsilon Theory, wrote an article where he argues that the inflation narrative is strongly taking hold.  His methodology relies on AI which scans Bloomberg articles for comments on inflation, and relates those comments back to the main theme of the stories.  The results are graphed, and my personal analogy is that these disparate comments are being gravitationally drawn together over time into the mass of a celestial black hole; the story itself BECOMES inflation. [Yes, I’ve overstated conclusion, but it’s a good read, below]

https://www.epsilontheory.com/the-narrative-giveth-and-the-narrative-taketh-away-2/?mc_cid=87155a8033&mc_eid=19bf9b14ff

 

Back to rates and availability.  The junk bond flare-up in late 2015/early 2016 was related to collapsing energy prices and emerging markets.  It was, and remained, fairly specific.  If there were to be another big crisis, it’s not going to be related to mortgages.  By 2004-2006 the share of total subprime mortgages had doubled from the years previous to around 20% or $1.3T, but subprime ARMS were only 6.8% of all mortgages outstanding. Comparing these percentages to those in the Bloomberg BBB article, it seems as if the lower credit quality of the corporate market has the potential be much broader in scope and more pernicious in effect than 2015.  Could it rival 2008/09 if ratings agencies start a series of downgrades?  Both the level of rates and the level of spreads are critical in terms of companies’ servicing obligations.  Rates, have of course, increased, with three hikes since the start of the year.  The spread (chart below) took a jump in the early part of 2018, perhaps connected to the Feb VIX spike.  While the spread is off the high of summer, actual debt servicing costs have increased.  Note that many asset managers can’t hold junk.  There are parallels to the GFC, but if problems DO develop, the main players won’t be gullible overleveraged households losing homes due to evil banks, it will be corporate entities that willingly engaged in a financial engineering minuet with bankers.  The Trump administration is familiar with bankruptcy.  The government will be much less inclined to provide assistance.

The broad points are that inflation is taking hold even if growth decelerates.  If the Trump administration moves towards even more stimulus, the market may become less welcoming in absorbing supply, and the Fed has demonstrated a willingness to lean against fiscal profligacy.  Financial conditions can easily tighten, rapidly, just through market action and demand for more compensation for funding in the face of an increase in perceived risk.

 

 

 

******************

Earnings season is kicking off.  US news includes Retail Sales on Monday. Industrial Production and JOLTS on Tuesday, Housing Starts and FOMC MINUTES on Wednesday.  Philly Fed Thursday and Existing Homes Friday.

Reports circulated late last week that Treasury staff had advised Mnuchin that China is not manipulating the yuan.  The official report from the Trump administration comes out Monday. Yuan was 6.9222 Friday.

*****************************

 

10/5/2018 10/12/2018 chg
UST 2Y 288.5 283.6 -4.9
UST 5Y 307.1 299.3 -7.8
UST 10Y 322.7 313.9 -8.8
UST 30Y 339.7 331.6 -8.1
GERM 2Y -51.4 -56.0 -4.6
GERM 10Y 57.3 49.8 -7.5
JPN 30Y 94.1 90.6 -3.5
EURO$ Z8/Z9 59.5 51.5 -8.0
EURO$ Z9/Z0 5.0 3.0 -2.0
EUR 115.23 115.60 0.37
CRUDE (1st cont) 74.34 71.34 -3.00
SPX 2885.57 2767.13 -118.44
VIX 14.82 21.31 6.49

 

https://www.barrons.com/articles/perma-bear-albert-edwards-says-rising-yields-could-signal-a-recession-this-is-why-hes-wrong-1537466892

https://en.wikipedia.org/wiki/Subprime_crisis_background_information

Posted on October 14, 2018 at 11:56 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Oct 12. Pinning hopes on China?

–ESZ (Dec mini-S&P) tested the 2748 level four times yesterday before breaking through and making new lows, apparently due to a large sell program. However, there was a strong snap-back late in the day coinciding with news that Trump and Xi will meet at the G20 in November.  Yes, Kanye will be there too. That support has carried over this morning, leading to pressure on fixed income.
–While the treasury reported that China is not manipulating its currency, CNY is near a new low this morning at 6.9249, and Reuters reports that China’s exports surged at a 14.5% annual pace in September, leading to a record surplus with the US.  “The big picture is Chinese exports have so far held up well in the face of escalating trade tensions and cooling global growth, most likely thanks to the competitive boost provided by a weaker renminbi.” said Julian Evans-Pritchard of Capital Economics (RTRS).  The article doesn’t say how much of that surge is related to building inventory before tariffs took place.
–Yields fell appreciably yesterday with a solid bond auction on the back of weak stocks.  Tens fell 8.7 bps to 3.135% (right around the previous high which had been set in May).  The curve flattened with reds +6.625, greens +8 and blues +9.   EDH9 9725/9737 call 1×2 was bought in size of 100k for flat.  There has been a decent amount of covering of otm puts, including a buy of 50k EDH9 9687p for just over 1 bp.  There were also some wider call 1×2’s, for example a buyer of EDU9 9737/9787 1×2 bought for 1.5, 20k.  Looks like it might have been a cover or roll, but probably not a bad trade. Pressure on interest rate premium is unrelenting even in the face of stock market jitters.  Chart below shows VIX move significantly outpacing TY.
–Gold was another beneficiary of stock market turmoil.  GLD etf broke out of downside consolidation on the heaviest volume since 2016 and gained 2.90. GCZ8 was up $34 to 1227.60.  WTI plunged 2.20 to settle just under $71 (CLX8).
–CPI slightly softer than expected yesterday.  Today brings import and export prices, with U of Mich inflation expectations and sentiment.
Posted on October 12, 2018 at 5:29 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Oct 11, 2018. Going Loco

–Carnage continues this morning in equity markets.  ShComp -5.2%, Hang Seng -3.5%, Nikkei -3.9%, Kospi -4.4%, Dax down only 1.5% but new lows for the year.  When markets have large moves like yesterday, technical guideposts like moving averages and retracement levels become much more important because all the machines that trade one product against another find that correlations are looser or breaking down altogether, and either the machines are turned off or markets widen out.  Of course liquidity drops; I’m sure it will become a head-scratching topic on financial tv.
–Yesterday both 5/30 and 2/10 posted new highs at the futures close with both just above 34 (using w/i).  It was after the floor close that interest rate futures really jumped.  For example EDZ9 settled 9675 and now trade 80, EDZ0 9670s and now 76.  Russell blew through the 200 day moving average early yesterday and the Nasdaq closed right at its 200 DMA.  NY Fang index was around 17% off its high from June yesterday, and will probably hit the 20% ‘bear market’ definition today.  Trump helpfully blamed the Fed hike for the turmoil.  He said the Fed was “going loco” by raising.  Now it’s time to handicap how the Fed responds: does Powell stay with the theme of gradual hikes because the stock market is NOT the economy?  Or will the hiking schedule go into hibernation?  I had yesterday mentioned that Feb/April Fed Funds traded 18.5 first thing in the morning, indicating new high odds for a hike in March.  This spread settled 18 but was 17.5 offer late and will probably visit 12.5 shortly.
–Finally, Financial Conditions, as outlined by former NY Fed President William Dudley, have tightened a lot.  Dudley mentioned 5 things.  1) Short term rates: new high after Sept’s hike. 2) long term rates: new high for the year last week 3) the value of the dollar: stronger, esp against EM. 4) Stocks: significant declines yesterday though still positive on the year 5) Corporate spreads.  This last one deserves a bit more attention.  The last domino to fall…  There have been many articles about deteriorated corporate credit, noting that in the investment grade universe, the percentage of debt which sits just above junk is at its highest level ever.  That means a lot of companies are clinging by their fingernails to investment grade ratings.  The spread blow-out in late 2016/2016 was easy to identify because of the energy rout.  This time it will be much more systemic and pernicious.  It’s not the Fed we have to worry about in terms of tightened credit, it’s the market.  Many pension funds can’t hold junk.
–CPI and 30 year auction today.
Posted on October 11, 2018 at 5:29 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

1010. Gold priced in yuan

Gold priced in yuan.  Fairly stable, but the downside bias makes it look as if China would be justified in letting CNY go through 7….

Posted on October 10, 2018 at 12:26 pm by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Oct 10. China’s not the only one depreciating

–Light volume Tuesday.  Implied vol opened with a strong bid due to ongoing concerns with the Italian budget, but sellers quickly engaged.  For example, 3EZ 9675 straddle had settled 24 on Monday, opened 24.5 bid Tuesday and was sold there soon after the open, settling at 23.5.  The curve had a flatter bias in treasuries, with auctions today in 3 and 10 year notes.  Decent selling in TYZ 116 and 116.5 puts; appears new sales against higher strike longs.
–This morning the FT reports that Mnuchin is warning China not to devalue its currency in response to US tariffs; CNY now 6.923, nearing 7.  However, other currencies in the region continue to depreciate vs USD.  New low in India rupee, and the Indonesian rupiah is close to a new low.  Korea won also close to breaking out to new lows.  In spite of that, I would be tempted to sell EURJPY over 130 with a target of the double bottom just over 125.  
–PPI expected +0.2 with yoy +2.8.  Core PPI expected +2.5 yoy.  Crude oil was just breaking out to the upside in late September, and I would think there’s a risk that Hurricane Michael could further disrupt the market.  
Posted on October 10, 2018 at 5:33 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Oct 9. Rotation? Or just a spiral down?

–In another sign of global fragility, Pakistan has asked the IMF for assistance, just as the latter institution downgraded its global growth assessment (following Lagarde’s warnings last week).  Italy’s budget truculence continues to spill into markets, where the 10 yr btp is now 3.68%, adding to further pressure on Italian banks.
–Stocks took a tumble yesterday and are lower this morning, though still above Monday’s lows.  In spite of weakness in stocks, USZ and WNZ (30-yr and Ultra bond contracts) were still lower Monday throughout the session, and the selling, and/or lack of bids, in front of this week’s auctions, continues.  A headline on the WSJ website this morning: ‘Bond Market Freaking Out?  It May Spark a Healthy Rotation’. Yeah.  Or it may create a Spiraling Vortex that Wreaks Havoc on everything in its Path.   Thanks WSJ.
–Consider these prices late yesterday, USZ was 137-07 and the 22 delta Dec 134 put (3-07 away) was 36/37 while the 24 delta 140 call (2-25 away) was 33/34.  Bid to puts.  In dollars, the bid is to calls.  For example, 3EZ 9650/9700 risk reversal covered 9675 is flat bid for the call (43d).  If there’s a flight to quality spark, it probably will be in contracts in front of blues.  Although the eurodollar curve edged flatter yesterday, weakness on the long end of the treasury curve is going to have to show up eventually in the back end of the dollar curve.
–Pretty quiet overall yesterday but we did notice a large (exit) seller of jan FF at 9761/60.5 in 30k.  9761 is 2.39% against a current Fed effective of 2.18%, so 21 bps priced for the Dec FOMC (where there’s still a possibility that IEOR only rises by 20).  It’s a time when position adjustments, which have the potential to turn into forced adjustments, can dominate trade activity.  ​
Posted on October 9, 2018 at 5:26 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Oct 8. Columbus Day

–Despite a cut in reserve requirements over the weekend by the PBOC, Shanghai Comp is down 3.7%.  Concerns about Italy have taken the Italy Bank index down over 4% this morning.  Salvini helpfully called Juncker and Moscovi enemies of europe, sending the btp/bund spread to a new high of nearly 310 bps.  US stock futures are also lower this morning, but not through the lows set on Friday.

–The curve steepened on Friday’s sell-off, with both 2/10 and 5/30 up 2 bps to recent highs of 34.0 and 32.5.  Near eurodollar calendar spreads also made new highs, with EDZ8/EDZ9 up 3 bps to 59.5, and EDH9/EDH0 up 3.5 to 43. While there was some profit taking on long US puts (USX 138/137ps sold at 27, 6k), there continues to be interest in buying long dated ED puts.  For example, EDZ0 9550p 4.0 paid for 20k.

–More deferred ED calendars closed near the highs of recent ranges, but reds/greens and reds/blues are still negative.  If things really go pear-shaped in US equities, then reds will probably lead on a rally.  If inflation data picks up (PPI and CPI out Wednesday and Thursday), then the curve will likely steepen further, which should also push reds/blues into positive territory.

–An uneasy risk-off sentiment is building which may lead to demand for US treasuries, but it’s far from clear that yields will drop, as Uncle Sam has new supply to move off the lot.  Treasury auctions of 3’s, 10’s and 30’s beginning Wednesday will raise $45 billion in new cash.  Expect thin conditions today given the US holiday.

 

IT8300 FTSE All-Share Italia Bank Index (www.bigcharts.com)

 

Posted on October 8, 2018 at 5:22 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Oct 7. Creative Destruction

“The urge to destroy is also a creative urge” – Picasso (as tweeted by  banksy)

“We are prepared to destroy that which we have created because we believe more than any of them in the power of the picture, the poem, the prayer, or the person.” – Mishka Fyodorovich, in the novel A Gentleman in Moscow, describing the Russian psyche as compared to the Europeans’

Banksy’s Rage Flower Thrower

As everyone knows by now, the underground street artist known as banksy apparently installed a shredder into the frame of one of his paintings, Girl with Red Balloon, so that if it were ever to come to auction, it could be destroyed.  On Friday, Sotheby’s auctioned the painting for more than £1m.  The frame began to shake; the shredder was deployed.  (And now the painting might even be worth MORE!)

In the markets on Friday, the US employment report was released.  It showed lower payrolls than expected at 134k, but the previous month had a robust revision higher, and the rate, at 3.7%, was the lowest since 1969.  Yoy wages were +2.8% as expected.  However, after a brief headline rally, treasuries were shredded and closed at new lows, with the ten year note ending at 3.22%, up 3 bps on the day and 17.5 on the week, while the 30-yr bond closed 3.396%, up 4.2 on the day and 20.2 on the week!  Highest ten year yield since 2011, and the highest 30-yr since 2014. The end of the day was fairly quiet, with our office, like many throughout the city, riveted to the televised verdict of the Chicago policeman accused of murdering Laquan McDonald.  I recall the old chairman of the CME, Jack Sandner, once giving a speech where he shouted, “the business of the CME is NOT trading futures, it’s RISK MANAGEMENT”.  The City of Chicago, County of Cook, has taken that lesson to heart for disruptive protests (not so much for its own financial affairs).  Chicago police and fire personnel were on extended shifts and high alert to control risks in case the verdict resulted in a destructive cauldren of rioting.    As Mayor Richard Daley said in a famous malapropism in a 1968 press conference (linked below), “Gentlemen get the thing straight, once and for all. The policeman isn’t there to create disorder, the policeman is there to preserve disorder.” In this case, the verdict was guilty of second-degree manslaughter.  The city remained calm.

As mentioned in my note on Friday, during the summer, Urjit Patel, head of India’s central bank, complained that the Fed’s balance sheet normalization was adding undue pressure on EM economies as liquidity was drained at the same time that increased US debt issuance was crowding out other borrowers.  The chart below shows the rupee in green along with the rupiah in red and the JPM EMFX index in white.  Conditions persist.  From BBG:  “The US budget deficit expanded to an estimated $782b in Donald Trump’s first fiscal year as president, which would be the widest fiscal gap since 2012 when the country was still emerging from the Great Recession.” …The deficit was equal to an estimated 3.9% of GDP, up from 3.5% in the prior year.” Interest expense in fiscal ’18 was a record $523 billion.

With risk-free rates going up on treasuries, competition increases for flows of funds that previously funneled into US equity markets.  Additionally, with the somewhat uncreative destruction of global supply chains due to trade policy, input costs and inflation in general are increasing.  WTI Crude hit a new high for the year last week, and although it pared back gains into Friday, it still ended up over $1/bbl at $74.34.  While the NYFANG index is off nearly 13% from the high posted at the start of summer, US equities are still well higher than the start of the year.  Not so with China.  Shanghai Comp, Hang Seng and S Korea’s Kospi are all lower.  While the US Fed signals continued hikes, the PBOC cut reserve requirements.  Sell US and buy China?  The time might be getting close.

The sea change has been bear steepening of the curve.  The five-year yield was up only 12.8 bps while the thirty-year surged over 20.  Uncertainties about term premia and the neutral rate have increased as various Fed officials have discussed the topics.  A few weeks ago ten year treasury vol was at historic lows.  This week implied vol necessarily firmed.  Risk is perhaps once again about to be priced into ‘risky assets’ without the Fed’s backstop. Oh, and perhaps it’s worth inserting a reminder here that the King of Debt suggested as recently as May of 2016 that if the US got into trouble as a result of borrowing, he could negotiate a haircut.  Candidate Trump “…told the cable network CNBC, ‘I would borrow, knowing that if the economy crashed, you could make a deal.’”

Below is a chart of 5/30 treasury spread which begins in late 2015, when the Fed began to hike.  There have been a few false bottoms in the curve over this period (yes, I’m guilty), and a true change in trend typically doesn’t occur until the market perceives the Fed being close to the end of the hiking cycle.  However, this chart certainly appears to indicate a bottoming process.

 

An interesting piece on WolfStreet.com this week (link at bottom) notes that since the Fed began its balance sheet unwind, holdings of MBS have declined by $89 billion to $1.682T.  The high late last year was $1.780T.  The Fed doesn’t hedge MBS risk.  Private holders do, which can also lead to risk-management demand for options.

In short, the Fed is slowly dismantling the architecture put in place after the crisis, and allowing the market to create new risk parameters.  In the long run, it’s a healthy process.  At the same time, the administration has injected fiscal stimulus.  Both of these policies operate with variable lags.  Increased inflation expectations are beginning to take hold.

This week the treasury auctions 3’s, 10’s and 30’s (re-open of 10’s and 30’s) in size of $36, $23 and $15 billion respectively, raising $45 billion in new cash.  Threes and tens on Wednesday; PPI is also released on Wednesday.  30-yr bonds on Thursday, after CPI is released.  Although fixed income markets have already encountered selling pressure, these auctions might cause a bit of indigestion.

******************

Now I just want to sketch out a few thoughts about the supposed large spec short in the ten year futures that various commentators think (thought?) would have an influence on the market.  First, hat tip to the shorts.  You’ve been right.  Second, I’ve done a few barroom napkin calculations for this next bit; if anyone is really interested I may dig deeper.  I looked at three years, 2007, just prior to the GFC, 2012 and 2017.  The Federal debt outstanding in 2007 was $6.074T.  Five years later it was $12.848T and in 2017, $16.455 with our fearless administration set to blow it up further.  The duration of the debt was around 55 months in 2007, 64 months in 2012 and 71 months in 2017 according to BBG.  So in ten years, the amount of debt grew 2.7x and was extended by over one year.  So now let’s look at the amount of open interest on treasury futures.  In 2007 it was about 7.586 million contracts (I doubled the 2 year amounts since they are $200k notional compared to $100k for other contracts).  In 2017 it was 14.45 million.  Call it 2x.  The point is, that even with the introduction of the Ultra ten year note and the Ultra bond contract in the last ten years, the open interest on the exchange hasn’t kept pace with the explosion in government debt.  Yeah, I know that there are a million reasons for  this, including the Fed siphoning off treasuries and MBS for its balance sheet.  There have also been other competing etf products introduced.  My point is this: if you use the Commitment of Traders reports as the cornerstone of your analysis, I don’t think it’s anywhere near as valuable as it once was.  One other interesting side note: Even though ultra bond options never trade, there is more open interest in the ultra bond (WNZ8) than in the classic 30-year bond (USZ8) with 1.057m in the former and .935m in the latter.   It’s been that way for a while, but increased interest in longer dated assets will likely grow. (I still don’t know why Mnuchin squashed the idea of 100 year bonds when he had the chance at lower rates).

 

 

9/28/2018 10/5/2018 chg
UST 2Y 281.3 288.5 7.2
UST 5Y 294.3 307.1 12.8
UST 10Y 305.0 322.5 17.5
UST 30Y 319.4 339.6 20.2
GERM 2Y -52.4 -51.4 1.0
GERM 10Y 47.0 57.3 10.3
JPN 30Y 90.3 94.1 3.8
EURO$ Z8/Z9 48.0 59.5 11.5
EURO$ Z9/Z0 2.5 5.0 2.5
EUR 116.05 115.23 -0.82
CRUDE (1st cont) 73.25 74.34 1.09
SPX 2913.98 2885.57 -28.41
VIX 12.12 14.82 2.70

 

https://www.gettyimages.com/detail/video/mayor-richard-daley-gives-press-conference-following-the-news-footage/450024384

https://wolfstreet.com/2018/10/04/feds-balance-sheet-normalization-reaches-285-billion/

https://www.nytimes.com/2016/05/07/us/politics/donald-trumps-idea-to-cut-national-debt-get-creditors-to-accept-less.html

Posted on October 7, 2018 at 12:43 pm by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options