Potential for a bearish breakout

September 17, 2021

–Stronger than expected Retail Sales sent yields higher.  Got the magnitude right, but the sign wrong, +0.7% vs -0.7% expected. Tens rose 3 bps to 1.331%.  The curve steepened slightly in dollars, although 5/30 edged to a new low just below 105 bps.  In euro$’s the first five years of the strip net changes: whites -0.25, reds -2.125, greens -4.375, blues -6.0 and golds -5.25.  Interestingly, in one-year calendars, reds to greens made new recent highs.  I have attached a chart of EDU’22/EDU’23 which is the peak one-year calendar on the strip, having settled 64 yesterday.  This is the last white to the last red, or the 4th to 8th quarterly.  This period covers the libor cessation at the end of June 2023, so the spread is about 10 bps higher than it would be otherwise.  The high in this particular spread has been 68.5 which occurred at the beginning of April.  At the time it was in the slot of 6th to 10th, and the high of any one-yr calendar also occurred at that time with the 9th to 13th quarterly spread settling 78.  So, back in April, about five and a half months ago, the steeper part of the curve was further back, which makes complete sense as the Fed was on full throttle accommodation.  Now it’s less steep overall and the peak has moved closer in time as the market has bought into the transitory story, while the Fed has gently guided to a withdrawal of accommodation.  Currently the 9th to 13th quarterly spread is Dec’23/Dec’24 and it is only 40 bps.   

My only point here is that the bulk of the year’s range in U2/U3 has been 49 to 65, and a breakout to the upside would, in my opinion, be a bearish signal for fixed income in general. 

Posted on September 17, 2021 at 4:12 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Anchors Aweigh

September 16, 2021

–Inflation stories in the news are unceasing now.  Here’s an interesting clip from CNBC about online sales; “Last month, Adobe found online prices grew 3.1% yoy and climbed 0.1% from the prior month.  From 2015 to 2019, online prices on average fell 3.9% annually.”  A huge change in trend from negative to positive.  Are inflation expectations anchored?  New highs in NatGas, RBOB, BBG Commodity Index.  Interestingly, this is exactly the time that someone threw in the towel on the EDZ2/EDZ4 calendar that MS had recommended following the June FOMC.  I believe it had traded 118 or so at that time, settled 95.5 yesterday with an exit buyer of 40k EDZ4 at 9861 to 61.5.  There also appears to have been exits in the treasury curve with a FV/WN block trade flattener early ($500k DV01) and FV/UXY later in the day.  Early in the day 5/30 made a new low of 105 but closed 106.6 (still a new low), and all treasury futures except WN showed declines in open interest.  Seems quite strange that the plug is being pulled just as commodity prices soar.  They are selling gold and selling the curve with the former down $12 this morning to $1783.  I suppose there is a lot of trepidation in front of next week’s FOMC in the event of an even more hawkish dot plot.  Guggenheim put out a tweet expressing the view that the new low in 5/30 is because the market is now accepting the view that inflation is transitory.  I think the market is worried about the FOMC and the ridiculous dots.  The head guy is telling us inflation is anchored and transitory and the minions are moving dots up.  I don’t know whether it’s transitory or not.  But I sure as hell am not going to short oats. 

–There was a buyer of 50k 0EV 9956.25/9950 p 1×2 for 0.5.  Appears to be a roll to a higher strike, and may be a protective play against the EDZ2/Z4, some of which is now just long EDZ2 which settled 9957. –Looks like it’s all over for Evergrande, but still no ripples in the market.  On the other hand, Tencent in HK was 750 in February, and is now 450.  Could never happen to a large US tech company, right? 
–Big option expiration Friday in stocks.  Today in the US, Job Claims expected 323k.  Philly Fed 19 vs 19.4 last.  Retail sales -0.7% m-o-m.  

Posted on September 16, 2021 at 5:11 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

So crazy it might just work

September 14, 2021

–CPI today expected 4.2% yoy with Core 5.3%.  Yesterday featured small declines in rates, with tens down 1.7 bps to 1.322%.  Trade of the day was a buyer of 40k 2EH 9950c with 50k 3EH 9950c at a package price of 11 to 13.5.  Settlements were 1.75 in 2EH vs 9889 in EDH’24 and 1.25 in 3EH vs 9856.5 in EDH’25, so 13.25 in pkg 4:5.  Open interest in the blue March strike was up 46k to 208k. 2EH calls have 72k open.  3EH 9950c were originally bought in size of 80k on Aug 12, paid 2.0, and again on Aug 23, 2EH / 3EH 9950c strip 1:1 4.5 to 4.75 paid for 10k. 
Last summer during the worst of COVID the first two blues traded above 9950.  Perhaps odds of a repeat aren’t that great… but I’ve seen crazier things.  Wingy buys?  TYV 135c and 131p which expire one week from Friday, were both bought for 1, about 15k each.  But nothing beats this as a lotto ticket flier:  Bankrupt Chicago ran a full page ad in the Dallas Morning News trying to lure business from Texas to Chicago.  Nice use of taxpayer funds. 

–Bloomberg Commodity Index closed at a new high of 97.67, up 25% ytd.  Hasn’t been this high since 2015.  The last big upward trend in BCOM from the end of 2001 lasted 6.5 years for a total gain 171%.  The low in April 2020 was 59 (according to BBG, that’s the low since 1974!).  At its current level BCOM is still 59% below the high of 2008.  Of course, that’s when WTI surged to $140/bbl.  Now it’s only half that amount with CLV1 70.91 this morning.  The AP reported over the weekend that, “The U.S. has removed its most advanced missile defense system and Patriot batteries from Saudi Arabia in recent weeks, even as the kingdom faced continued air attacks from Yemen’s Houthi rebels, satellite photos analyzed by The Associated Press show.”I’m not making the leap that the world might perceive that the US is abandoning SA, but at least this time we’re getting the hardware out first.  Puts a floor under the price of oil, I would think.

U.S. pulls missile defenses in Saudi Arabia amid Yemen attacks – POLITICOForeign Policy. U.S. pulls missile defenses in Saudi Arabia amid Yemen attacks. Prince Sultan Air Base, some 70 miles southeast of Riyadh, has hosted several thousand U.S. troops since a 2019 …www.politico.com

–From Cass Transportation yesterday: “The overall cost of shipping, across a mode mix reflective of the Cass customer base is up approximately 27% year over year.”  A Maersk exec had this to say last week, “We need lower [consumer demand] growth to give the supply chain time to catch up, or differently spread out growth.  Over a long period of time, we will need to recover efficiency.”  At the same time Maersk CEO is calling for fossil-fuelled ships to be phased out.   

Posted on September 14, 2021 at 5:45 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

CPI on Tuesday

Sept 13, 2021

–Stocks rebounding slightly this morning after having closed on the week’s low Friday, off about 75 bps on the day.  Fixed income also closed lower with the curve steepening; red/gold pack spread rose 4.5 to 106.625. (This is new pack spread as EDU1 expires today and December contracts become the lead contract in each pack).  2/10 ended the week at 112.4, up 3.7 on the day but only 1 on the week.

–Implied vol in treasuries remains under a cloud, near the low end of the range with TYZ 3.9.  October options expire one week from Friday.  With TYZ having settled 133-05 Friday, the TYV 133.5/134 call spread settled 10.  Still a large outstanding position of about 100k in this call spread, bought mostly for 10.  Large seller of 30k 2EZ 9900/9937 strangle on Friday at 15.0.  The put settled at 13.25 with 51 delta vs 9899 in underlying EDZ3.  

–Crude oil up $1 this morning to 70.73.  CPI released tomorrow.  As noted by White House economists, Case Shiller has risen by a sizzling 18.6% in the past twelve months, and is just now starting to show up in CPI data.  According to the SSA, “In 2021, an average of 65 million Americans per month will receive a Social Security benefit, totaling over one trillion dollars in benefits paid during the year.”  Tack on another 5% or more for Cost-of-Living-Adjustments, which are based on CPI. https://www.whitehouse.gov/cea/blog/2021/09/09/housing-prices-and-inflation/

Posted on September 13, 2021 at 5:44 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Keeping it Real

Sept 12, 2021 – Weekly Comment

“When you corrupt the most important pricing mechanism of money, the most important asset in a commercial economy, then by definition you mis-allocate every other investment based on price.”
–from friend RH Bailin  I think this line succinctly captures the big YOU ARE HERE arrow on the economic map.

In this thread Keith Weiner of Monetary Metals argues that Central banks, by suppressing interest rates, have substituted the siren’s song of rising asset prices for the fundamental benefits of capital allocation to productive growth, which are afforded by unmanipulated rates.  Here’s an excerpt:

But higher [asset] prices do not compensate for zero yield. Think of it this way… Falling yields are cyanide, the literal poison that Central Banks have introduced in markets. Rising prices are cherry flavoring. Cherry flavoring don’t change the fact you’re drinking cyanide!


Here’s a tweet and chart from Althea Spinozzi:

US high-yield corporate bonds’ real yield turned negative

Ms Spinozzi is using CPI, which comes out on Tuesday and is expected 5.3% yoy with Core 4.2% from 4.3% last.  The Financial Times notes the same thing:  “Real yields on European junk bonds go negative for first time in hunt for returns.” 

The implications are obvious: Borrow and buy.  Hoard.  The poorest credits can borrow at rates below which the prices of things are increasing.  It’s absurd. 

There was also a White House economic blog release on September 9, ‘Housing Prices and Inflation’ by Bernstein, Tedeschi and Robinson.  Here’s an excerpt:

Over the last 12 months, the Case-Shiller U.S. National Home Price index has risen by 18.6 percent, the strongest year-long growth in the history of the series…. Meanwhile, asking rental prices, as measured by the Zillow Observed Rental Index (ZORI), initially fell during the pandemic but have since recovered and now exceed their pre-pandemic trend.  [and will likely accelerate faster with the end of rent moratorium]
Because of the way shelter costs enter into the CPI, these increases in owned home and rental costs have not yet contributed much to overall inflation.
Our analysis, however, suggests that these higher shelter prices are likely to soon show up more clearly in the monthly CPI, potentially adding several more basis points… to monthly inflation than they do now.

The spin is that they add “…forecasts, including our own, show overall price growth decelerating in coming quarters.”  I personally don’t find that particularly reassuring.  Here’s another government official expressing reservations about the spending bill:  Democrat Rep (FL) Stephanie Murphy speaking about the House-advanced $3.5 trillion budget resolution: “As we begin the multi-day markup of this historic legislation, I don’t know how much we’re spending, how much we’re raising, how we’re spending some of the money, how we’re raising any of the money.”

We are about to get much higher inflation prints based on shelter prices that have not yet fed into data.  At the same time we are on the verge of a Fed taper.  I believe consensus is that taper will begin in November at a pace of $15b per month, ending in the middle of next summer.  The potential withdrawal of liquidity at the margin seems to have cast a shadow on the equity market this week.

I watched an interesting interview of John Paulson by David Rubenstein from earlier this month.  Several lines struck me.  First, when talking about MBS pricing before the housing bubble, Paulson said while it was true there hadn’t been a default, “…underwriting quality had never been as poor.”  Second, he mentioned at that time in 2007, the MBS market was larger than the treasury market.  Third, that in the current environment, “…the area that is most mispriced is credit.” Finally, he said there is a “supply/demand imbalance in gold.” 

In my opinion, due diligence as relating to underwriting quality might be at an all-time low, not in the mortgage market, but across the economy as a whole. Prices are based on suppressed rates.  When your core assumption of an argument is incorrect, the argument ultimately fails.  On Paulson’s second point, if one refers to the Fed’s Z.1 quarterly report, it’s true that in 2007 the Household Home Mortgage amount outstanding was $10.625T.  Federal debt was $6.074T.  Latest data is $11.071T for HH mortgages and more than double that amount in Federal Debt, $24.007T.  Is credit mispriced?  See real yields, above.  And that brings us to an imbalance in gold. 

Friend JJ Johnston writes, “The gold we trade is not gold anymore. it is an entirely financialized collection of derivatives (futures, ETFs and options on both). And in my most humble opinion it is not a free or fair market. You can still buy coins at absurd premiums but any other iteration of gold, so called, is a neutered illusion.” 

Is it fair to conclude that there is a supply/demand imbalance?  If a huge new seller of GLD calls pounds the market, pushing down the price of GLD, in effect new gold supply has entered the market.  In turn the premium for physical might rise, but at a lower spot price.  Could we be approaching the time when “the physical” begins to drive all markets, rather than the derivatives?  


Auctions went great last week but yields edged a bit higher.  EDZ1/EDZ2 calendar moved back above ¼% to 26, from 23.5 the previous Friday.  Jan’22/Jan’23 Fed Fund spread settled 19.5, still only projecting one hike over that time frame. 

This week’s CPI data may be quite important as shelter prices start to seep in.  Retail Sales on Thursday. 

A week ago Friday VIX closed 16.4 and last week at 20.95.  Last week I wrote, “Seems like insurance is relatively cheap, as is the case with interest rate vol.  50-day historical vol on TY is just under 4%, which is where I marked TYZ on Friday.”  Treasury vol became slightly cheaper this week.  Below is 30 yr bond, which is actually a bit higher than indicated on the chart, but clearly at the low end.  I marked USZ at 7.8 Friday after taking out weekend time value.

UST 2Y20.621.50.9
UST 5Y78.481.43.0
UST 10Y132.4133.91.5
UST 30Y194.3193.2-1.1
GERM 2Y-70.7-70.40.3
GERM 10Y-36.1-33.03.1
JPN 30Y64.665.61.0
CHINA 10Y283.3287.13.8
EURO$ Z1/Z223.526.02.5
EURO$ Z2/Z355.557.52.0
EURO$ Z3/Z438.038.50.5
CRUDE (active)69.2969.720.43



Posted on September 12, 2021 at 9:29 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options


Sept 10, 2021

This is a good thread from Keith Weiner of Monetary Metals:

But here’s the best clip:
But higher [asset] prices do not compensate for zero yield. Think of it this way… Falling yields are cyanide, the literal poison that Central Banks have introduced in markets. Rising prices are cherry flavoring. Cherry flavoring don’t change the fact you’re drinking cyanide!

The idea is that rising asset prices based on ZIRP have turned into a false trap for the US economy.  

–Implied vol in treasuries pressured lower after the ECB meeting and a stellar 30y auction. TYZ 133 straddle was 2’02 Wednesday and the atm 133.5^ down to 1’58 yesterday, below 4%.  USZ sub 8%.  In the front end there were a couple of plays on EDZ1, though it currently seems as if libor is the one thing that can never ever go up, in part because credit problems have been eradicated like a bad virus.  EDZ1 9975/9968.75ps 0.25 paid 20k and EDZ1 9981,25p vs 0EZ 9937.5p 0.25 paid 5k.  It’s like an insurance booster shot.  EDZ1 settled 9982.0, still a pretty good premium to 3m libor which has been around 11.5 to 12.  EDX1 (Nov contract) settled 9985.5 and still covers the turn of the year.
–In other flow, 2EZ 9875p vs 9918.25 call vs 9900 with 54 delta, flat paid for the put 25k.  Put settled 4.75 and call 5.75 vs 9901.5.–The last couple of days saw accumulation of about 90k TYV 133.5/134cs for 10/64.  After the 30 year auction, tens popped over the lower strike and settled right at it at 133-16.  Call spread settled 14.  Two weeks until expiration.  Midcurve euro$ options expire today.  The market is not anticipating much of a move: late yesterday 2EU 9912.5 puts were 0.5/1.5 ref 9913.5 bid, and 3EU 9975c were 0.5/1.0 vs 9873/73.5.

–Today’s news includes PPI expected 8.2 vs 7.8 last.  EIGHT PERCENT. 

–Small dip in stocks yesterday as Kaplan and Rosengren exited longs and shifted into FI. Who says that regional Fed Presidents can’t influence markets?

Posted on September 10, 2021 at 5:44 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

But I have a reservation…

September 8, 2021

–Curve continues to grind steeper in the face of both corporate and treasury supply.  Today treasury auctions $38b in tens, with yesterday’s yield climbing 4.7 bps to 1.368%.  2/10 spread rose 3.3 to 114.8, a new recent high.  In eurodollars, reds (2nd yr) -2.5, greens -4.75, blues -5.375 and golds fell 5.5.  So the red/gold pack spread was up 3 to a new recent high 118.625.  Just as a point of comparison, at the start of April, the then gold pack settled as low as 9772.5, yesterday the gold pack (5th year forward) settled 9833.75

–Today’s news includes JOLTS expected slightly over 10 million.  The jobs are apparently out there…  Fed releases the Beige Book summary for the Sept 22 meeting.  Ten year auction and Consumer Credit.

–Large trades yesterday included an early buyer of 50k TYV 133.5/134cs for 10/64, settled 9 vs 133-00; new position.  Exit of 30k 0EH 9937/9912ps at 4.75 vs 9949, settled 5.0 vs 47.  

–Fitch downgraded Evergrande, and Reuters reports the company plans to suspend interest payments on loans to two banks on Sept 21.  The article further notes the company may suspend all payments on its wealth management products starting today, September 8.  See, when payments are stopped on “wealth management products”, then they don’t really contribute to wealth.  You know how to take the money.  You just don’t know how to manage the money.  And that’s really the most important part of the wealth management product.  Managing the money.  And that’s when BlackRock steps in.  Their prowess has already been on display in buying vast numbers of homes in the US, which they can do at even lower financing rates than current rock bottom mortgage rates.  Essentially shutting out core homebuyers.  Yes, you should do quite nicely in China. Of course in the US Blackrock has huge influence with the Fed and Treasury. The price to pay in China may be that you’re forced to buy some worthless assets at inflated valuations as an entrance fee. Manage that.


Seinfeld car reservation


Property developer China Evergrande Group plans to suspend interest payments due on loans to two banks on Sept. 21, financial intelligence provider REDD reported on Wednesday, citing four sources briefed by bankers.

Evergrande has delayed payments to several trust firms, REDD reported, adding that the company may suspend all payments to its wealth management products starting Sept. 8.

Posted on September 8, 2021 at 5:31 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Grande to pequeño

September 7, 2021

–Friday’s lower than expected NFP of 235k caused a brief knee-jerk rally which faded, counterbalanced by yoy wage growth of 4.3%.  Tens closed +3.7 bps at 1.32%.  The red eurodollar pack closed +0.875 with all following contracts down on the day, leading to a recent new high in red/gold pack spread of 115.375.  Gold pack, 5th year forward, -3.625 on the day.

–The NY Fed suspended its GDP Nowcast as volatile data wreaks havoc on the model, but Goldman is downgrading future growth.  Perhaps the end of employment and other benefits is a factor which will reveal dependency on fiscal largesse.  Or perhaps job openings will now begin to see more applicants.

–Moody’s cut China’s Evergrande, which has now been shut out of repo markets.  Not much reaction to the developing game of credit dominoes, though US stock index futures went from positive on Monday to negative this morning.  Gold is getting hammered, down $21 as of writing to $1812/oz (a victim of sales to raise liquidity?).  On the other hand, aluminum marches on to new highs, up over 38% ytd.

–Treasury kicks off auctions with $58b in 3s today, followed by $38b tens on Wednesday and $24b thirties on Thursday.

Posted on September 7, 2021 at 5:35 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Spoofing the world

September 5, 2021

From the Financial Times, citing Bank of Russia’s monetary report from Thursday.

Russia’s central bank says a new financial crisis on the scale of the 2008 collapse could happen in less than 18 months if global inflation is not kept in check. A surge in public and private sector debt levels during the recovery from the pandemic could cause the global economy to “deteriorate drastically and rapidly” if the US Federal Reserve has to jack up interest rates to quell inflation, the Bank of Russia warned in its annual monetary policy forecast… “Risk premiums will increase significantly, the most indebted countries will struggle to service their debt, and a significant financial crisis will begin in the global economy in the first quarter of 2023 — one comparable to the 2008-2009 crisis, with a long period of uncertainty and a protracted recovery,” the central bank said. The prediction is not the central bank’s central scenario.

On Wednesday, China’s leader Xi addressed the Central Party School and said, “The great rejuvenation of the Chinese nation has entered a key phase, and risks and challenges we face are conspicuously increasing.” “It’s unrealistic to always expect easy days and not want to struggle.”

Russia is widely expected to raise rates this week to stem inflation.  Changes in China are much more far reaching.  The days of Trump applying pressure to China are over.  Covid provided cover for increased government control across the globe. China has shifted into high gear for dominance.  No more video games.  No more effeminate men on TV.  Chinese billionaire actress Zhao Wei has been scrubbed from all internet references and film credits. (Imagine if that happened with LeBron).  In the words of Dean Wormer, “No more delta! And if you wiseguys do one more thing, one more, I’m going to kick you out of college!  No more fun of any kind!”  The increasingly used phrase “common prosperity” isn’t meant as a joke, as the concept is when described by the US political class.  Xi has cracked down on tech companies and excessive wealth.  At Monday’s meeting of the central committee he approved measures to “…fight monopolies, battle pollution and shore up strategic reserves.” (BBG) On Saturday, Chen Yulu, deputy governor of the PBOC said that loopholes in financial tech regulation will be closed, and we will “…build all kinds of firewalls to resolutely prevent systemic risks.”  These shifts are huge.  Preparation for a cold winter.  As D-day told Bluto, “War’s over man.  Wormer dropped the big one.” 

The BBC posted an interesting piece this weekend, “Why China’s bitcoin miners are moving to Texas”.  The story quotes Kevin Pan, CEO of Poolin, the 2nd largest bitcoin mining network in the world. “We decided to move out [of China] once and for all. [We’ll] never come back.”  In what is being called the ‘Great Migration’ bitcoin miners are flocking to Austin for cheap energy in the context of light regulation and strong legal rights. 

Is that good because the US benefits from China’s brain drain?  Or bad because of increased estrangement between the globe’s superpowers and largest traders?

Since the year’s high in February, the OMX China tech index is down 37% while the Nasdaq is up 13% from the same starting date.  With China clamping down, is it reasonable to expect US stocks to simply continue marching higher?  Everyone is familiar with the Warren Buffet indicator of market cap to GDP, which is at a record high of 207%.  I narrowed it down a little and just used MSFT, AAPL, AMZN, GOOGL and FB.  At the end of 2015, when the Fed first tightened, US GDP was about 8.6 times higher than the market cap of these five companies.  In every year since then the ratio declined.  Currently GDP is just 2.4x more than the market cap of these five companies.  I saw a snippet on Investopedia that said that, in terms of valuation, a stock’s Price-to-Sales ratio is great at 1, and a bit on the high side at 2.  MSFT has a price-to-sales ratio of 13.5.  By the way, the BBG Commodity Index closed Friday within a fraction of the year’s high, which is also at the highest level since 2015.  BCOM on Friday: 97.11.  Last time it was here was July 2015, but that was on its way down.  Post-GFC high in 2011 was 175. 

Here’s a fun quote from your central bank (NY Fed): “The uncertainty around the pandemic and the consequent volatility in the data have posed a number of challenges to the Nowcast model.  Therefore, we have decided to suspend the publication of the Nowcast while we continue to work on methodological improvements to better address these challenges.”  More than a few analysts suggested that this admission of not knowing what the fu heck is going on, along with weaker than expected NFP on Friday (235k vs 733k expected) throws the whole idea of a taper this year out the window.  I disagree.  Part of the Fed’s job concerns financial stability.  Even Elvira Nabiullina is worried, and she doesn’t look like she scares easy.  In contrast with weak NFP, yoy wage gains were +4.3%, higher than any level from the GFC to 2020.  Of course, since covid, this data has been extremely volatile, hence the NY Fed’s abdication of responsibility.  To its credit, the Atlanta Fed’s GDP Now report simply advises that its model “does not capture the impact of Covid and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released.  It does not anticipate…”  From August 23 to Sept 2, Atl Fed’s GDP Now estimate for Q3 went from over 6% to 3.7%.  Next estimate is Friday.  

One other amusing report last week concerns a July 23 phone call between Biden and the former Afghan leader Ghani. From Reuters: “In much of the call, Biden focused on what he called the Afghan govt’s ‘perception’ problem. ‘I need not tell you the perception around the world and in parts of Afghanistan, I believe, is that things are not going well in terms of the fight against the Taliban…and there is a need, whether it is true or not, there is a need to project a different picture.’  Spoofing!  Biden spoofing with Ghani.  Put a big bid in…make it look like you’re a serious buyer!  But cancel if it starts to trade.

The themes of the global environment seem to be uncertainty associated with both covid variants and monetary/fiscal policies that were instituted with the onset of covid-19 that now have become unwieldy to control and project a wide array of possible outcomes.  On the other hand, I watched a bit of the Georgia Clemson game Saturday, and the packed stands suggested little fear of delta, lambda, mu or zeta (coming).   


The US treasury is set to auction $58 billion in 3s, $38b in 10s and $24b in 30s starting on Tuesday.  Perhaps the results of these auctions will suggest a bit more about taper timing than NFP.  Economic news is fairly light, though PPI is Friday, following July’s sizzling 6.6% yoy rise ex-food and energy.  CPI is Sept 14, Tuesday. The 20 year anniversary of the 9/11 attack is Saturday. 

Friday featured a brief knee-jerk rally after weak NFP but by the end of the day the curve had steepened with 2/30 closing the week at 173.5, up 3.3 on the week but well off the year’s high (March) of 229.  There was a bit of pressure on near one-year calendar spreads as the market pushed odds for a hike slightly further out.  For example, EDZ1/EDZ2 settled 23.5, the lowest in 22 sessions.  In Fed Funds, FFF’22/FFF’23 settled 19…less than one hike over that year’s timeframe.  Red/gold Eurodollar pack spread settled just over 115, the highest since early July, but the last two-month range has been pretty well contained by 100 to 115.  High in March was 182. 

VIX closed at 16.4 Friday, near the post-Covid low of 15.07 set in July.  The NY Fed can’t figure out what’s going wrong with the model and China’s in the midst of a crackdown that could reverberate globally.  Seems like insurance is relatively cheap, as is the case with interest rate vol.  50-day historical vol on TY is just under 4%, which is where I marked TYZ on Friday.   


UST 2Y21.520.6-0.9
UST 5Y79.878.4-1.4
UST 10Y131.0132.11.1 w/I 132.5
UST 30Y191.7194.12.4 w/I 194.3
GERM 2Y-73.5-70.72.8
GERM 10Y-42.3-36.16.2
JPN 30Y64.764.6-0.1
CHINA 10Y287.3283.3-4.0
EURO$ Z1/Z224.523.5-1.0
EURO$ Z2/Z358.055.5-2.5
EURO$ Z3/Z435.538.02.5
CRUDE (active)68.7469.290.55






Posted on September 5, 2021 at 10:45 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Payroll day

Sept 3, 2021

–NFP expected 750k with limited price changes in rate futures yesterday.  Eurodollar strip flat to +1.  Tens fell 1.6 to 1.284%.  Premium selling in front of payrolls and the long weekend, with both 131p and 135.5c showing open interest gains of 15k on a strangle sale; puts settle 19 and calls at 22 as the contract hugs 133.5.  

–China’s Evergrande was at 16 in March, now less than a quarter of that at a new low this morning below 4.  Every credit event seems to be absorbed globally with endless liquidity, so HK3333 may not be important.

–On the last employment report TYZ settled 133-12 with the Oct 133.5 straddle at 1’48 and the atm Sept straddle was 1’08.  Now futures are 133-15, and the Oct 133.5^ is 1’04, just a bit below where Sept was a little less than a month ago.  Since Powell’s JH address, futures have held gains in a tight range, but I would say price action argues for a back-and-fill closer to 133-00 if the data is about as expected.

–Sept’22 short sterling is trading around 9955 currently, having been above 9990 in January.  Yesterday there was a buyer of ~100k L U2 9900p for 3.25.  Maybe the Bank of England can restore some sanity regarding monetary policy…

Posted on September 3, 2021 at 5:02 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options