Rate vol surges

June 14, 2019

–Amazing bid to vol Thursday.  The chart below shows how treasury vol has exploded as compared to VIX.  While one can point to tanker attacks in the Gulf of Oman and Sec’y of State Pompeo naming Iran as the culprit later in the day, stocks took that information in stride.  However, interest rate futures surged again yesterday.  The ten year yield fell 3.7 bps to 2.089%, but EDZ19 thru EDU20 were up 8 bps.  Going into next week’s FOMC, easing expectations are being front-loaded, which of course, steepens the curve.  New high yesterday in 5/30 to 77.3 bps.  Ten year note to inflation-indexed breakeven dipped to a new low under 170 bps.

–Several shops are (mistakenly) calling for a rate cut next week.  Both July/Aug FF and Aug/Oct FF spreads settled at new lows of -20.5.  FFV9 on its own posted a new high settle of 9809.5, a level that’s 46.5 bps below the current Fed Effective.  I.e. two cuts are priced by September.  I can easily see a Fed pass next week and 50 to follow in July. 

–A couple of examples of the vol move: On Wednesday,  EDU0 9837^ settled 66.5 vs 9831.5, and yesterday settled 70.0 vs 9839.5.  USU 154 straddle settled 3’54 Wednesday (153-19) and 4’10 yesterday (154-08).  Perhaps these moves are partially due to the possibility of a surprise cut next week, which would also support stocks and therefore suppress VIX.  What happens if there’s no cut and a slightly hawkish presser?  July VIX futures closed at 17, a pretty good hedge as geopolitical factors are starting to boil over.  By the way, gold is also at a new high this morning, having rallied $80/oz since late May. 

–Retail Sales today, expected +0.6.  Industrial Production expected +0.2%.

White line TY vol / Amber is VIX
Posted on June 14, 2019 at 5:10 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply