Oct 29. All calm before the FOMC
–Green eurodollar pack continues to outperform, driven partly by option position exits. (Details below). Red/green pack spread edged to a new recent low of 72.375, -1.0 on the day. And while long dated green straddles maintained their recent bid, a new position seller of 6k green March midcurve 9875^ took the settlement down 1 bp to 37.5.
–Tomorrow is the Fed announcement. Today’s news includes PPI expected +0.2 and +0.1 Core. Retail Sales expected 0.0, +0.3 ex-auto. Consumer Confidence 75 from 79.7. And the 5 yr auction.
–As ECB bank stress tests loom, Deutsche Bank profit fell 94% on legal fees and lower revenues and UBS is being told to increase capital reserves by Swiss regulators (FT).
–India raised rates from 7.5 to 7.75 to combat inflation.
–US interest rate markets continue to be driven by position exits (total eurodollar open interest fell 45k yesterday). Implied vol has been sucked out as tens are expected to hover around 2.5% yield level. Recent downside plays have mainly been low delta put condors.
Large trades yesterday
+130k EDZ4 9925/9950ps (open interest down 90k)
-60k EDH6 9887/9825ps (open int -22k in 82p and -49k 88p)
+40k each 3EF and 3EH 9700/9725/9750/9775p condors (new) settled 3.75 Jan and 5.25 March.
-5k TYZ 127.5^ 114-113, 112s OI +5k
