The Merry Month of May

May 1, 2019

FOMC meeting today with the possibility of a cut in IOER.  Rates eased yesterday in spite of a record high in SPX, further supported by AAPL’s earnings report.  Tens fell 2.7 bps to 2.507%.  Reds through golds were up 2.5 to 3 bps.  New low posted in EDM9/EDM0 which has moved into the slot of the lowest one-year spread at -30.5; it fell 2 bps yesterday.  EDZ9/EDZ0 fell 1.5 to -28.0.  On the longer end, 2/10 and 5/30 both edged to new highs, 23.9 and 66.0 respectively.

–As an aside, when looking at the DV01 on the five year and bond contracts (June) and comparing that with implied vol levels, it appears that US vol is extraordinarily cheap to FV.  DV01 ratio is nearly 3.9, while US vol is just 2.4x as high as FV.  I think the ratio between the two is about as low as I have seen it,which doesn’t really make sense (to me anyway) in a steepening curve environment.  

–USM Mfg ISM expected 55.0 vs 55.3 last.  Prices paid expected to firm to 55 vs 54.3 last.  For a bit of context, prices paid topped out in mid-2018 just under 80 and have declined since then.  The readings this year: Jan 49.6, Feb 49.4 (the recent low) and March 54.3.  By the way, this area around 50 is where ‘prices paid’ were in mid-2016, when global bonds posted their lowest yields.

Posted on May 1, 2019 at 5:18 am by alexmanzara · Permalink
In: Eurodollar Options

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