Risk control

April 26, 2019

–Yields edged a couple of bps higher yesterday with tens at 2.534%.  May treasury options expire today with the TYM contract hugging the 123.5 strike.  Crude oil lower this morning, having pulled back from new highs made earlier in the week.  Shanghai Comp has likewise seen a pullback this week, off about 6% from the highs posted last week.  

–Today’s news includes Q1 GDP expected 2.0%, although the Atlanta Fed’s GDP Now model puts Q1 at 2.7%.  

–EDZ9/EDZ0 spread is again the lowest one-year calendar spread at -27.0, though Wednesday and Thursday M9/M0 had been cheapest.  Heavy buying of EDZ20 calls helped to push Z9/Z0 lower.  The highest contract (lowest yield) on the strip is EDH21 at a price of 97.805 or 2.195%.  It wouldn’t be surprising to see Dec/Dec revisit late March lows of -34.  For now pockets of stress with new lows in the Argentinian peso and Turkish lira aren’t reverberating across risk assets, but the demand for dollars is a clue that concerns are growing.  Next week’s FOMC press conference should be interesting with emphasis likely to be on ‘risk management’. 

–The ten year treasury to inflation-indexed note spread is now just under 2% at  198 bps.  At the end of the year and into January, it had been around 170 to 175.  This is simply one proxy for longer term inflation expectations, but the recovery doesn’t really support the Fed’s fear that disinflation is around the corner.  

Posted on April 26, 2019 at 5:17 am by alexmanzara · Permalink
In: Eurodollar Options

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