May 18. A Bronx Tale
–Interest rates continue to plunge, with tens at 1.70, essentially at new lows. 2/10 down 7 bps to 141. Red/gold pack spread at 125, also a new low. The Fed’s pledge to keep rates low through late 2014 had shifted the market’s interest to the blues (2015 contracts) in terms of setting shorts through puts and calendar spreads. Now those plans have gone awry, as green/blue calendars have plunged. (I’m truly sorry Fed’s dominion, Has broken market’s social union…) I marked green/blue pack spread at 47 yesterday, was around 60 two weeks ago. So, one could argue that the Fed’s pledge has backfired in an unanticipated way, though the ECB’s overt pledge of low rates through the LTRO has also spectacularly flamed out in terms of calming markets.
–There was a seller of 40k EDZ2 9925/9900 put spreads vs 9962c yesterday at 2.5. Trade was an exit. I am wondering if paring down of positions is due to a shift in market perceptions about the economy, or perhaps has a little bit to do with JPM fallout. There was also a buyer (only 500 according to prelim sheets) of USQ 173c for 2 and 3. Probably represents yield level of around 1.5% for the long bond as the contract is worth about 6 bps per point. The guy just looked at yesterday’s yield drop and figured the bond yield would fall 8 bps per day so he’ll be in the money in about a month. Simple.
–NATO summit starts. Protesters are supposed to be around the intersection of the Chicago Fed and the CBOT, targeting a bunch of clerks in trading jackets that are barely eking out a living. It brings to mind the story of protesters who thought it would be clever to swarm the LIFFE exchange, but who ended up having the same fate as the bikers who visited Sonny’s Bar in the Bronx Tale (youtube “now you’s can’t leave”, http://www.youtube.com/watch?v=pTzie3yKh40 ) Those were the glory days of trading floors…
