Feb 7. Neutral CBs stifle markets

–Once again it was a light volume day with little change in rates.  Tens fell less than 1 bp to 2.700%; thirty year auction today.  Near eurodollar contracts were modestly lower with EDM9 and EDU9 down 1 on the day, while EDM0 back rose 1 to 1.5.  Net result was weaker one-yr calendars, with EDZ9/EDZ0 easing to -18.0 (-1.5 on the day and lowest on the curve).  

–Early new buyer of 40k FVJ 114.75/115.75 call spread for 16; settled 15 vs 114-20 in FVM9.  There has been relentless selling of EDZ9 9725 strike, with over 20k calls sold yesterday.  The 9725 straddle settled 28 vs 9731.0.  Yesterday I mentioned the long green pack 9750 straddle strip, which had declined from 372 to 327 in a month.  Late afternoon it was sold down to 315, though I marked the settle at 318.5.  The change in Fed stance is sucking the life out of premium…

–However, it’s not just the Fed.  The FT this morning notes ‘European Commission cuts Italy’s growth forecast to a five year low.’  Perhaps this morning’s quote from the RBI sums up the global pivot.  “The shift in stance from calibrated tightening to neutral provides flexibility to address and the room to address sustained growth of the Indian economy…”  The new RBI head is Shaktikanta Das, who replaced Urjit Patel.  Patel bristled at the encroachment on the central bank’s independence and quit.  Now…looser policy. The recurring global theme is that easy money will support growth.  BOE meeting today also expected to trim growth forecasts. 

Posted on February 7, 2019 at 5:04 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply