April 4. NFP report.
Small net changes in front of today’s NFP, expected 200k. Dollar curve was slightly flatter with reds unch and golds +2.375. Back month eurodollar straddles had 0.5 to 1.5 bps sucked out. Bond rally at the end of last month has faded as some attributed the strength to Japanese year end buying. However, 5/30 still at low end of range at 184, and June bond vol stuck in the mud at 7.5.
–Several exiting adjustment trades yesterday. 2EM 9875/9900 c spd bought 100k for 1.25. Exit. Had been against 9775/9750 p spread which is likely still open though 9775 put open interest fell by 15k (settled 4.25). Sell 1 put for every 4 call spreads and completely remove upside risk? There was new buying of TYK 122p as some look for a blockbuster number.
–If there was ever a time to put the ‘one way ticket to Rio’ trade on before data, it’s probably to buy EDU4/EDZ4 for 6. If the market moves up odds (currently near zero) for an end of year hike, this spread should perform. Probably only 2 bps of risk in short term. By the way regulators, I am not truly recommending such rash behavior. (You should probably buy a ROUND TRIP ticket).
–I watched one of those nature programs on PBS last night, about the re-introduction of the wolf into Yellowstone, which had been previously hunted to extinction. There was a lot of concern prior to the release, about safety, environmental impact, etc. Without the wolf, the elk population had exploded, grazing the landscape to the ground. Plant and animal diversity receded. After wolves came back, the elk population thinned, which in turn allowed plant life to flourish. As willows were allowed to grow, beavers came back, which built river dams. River dams tend to slow the pace of flow, of course, and widen waterways, which attracted other wildlife. The eco-system generally diversified and became more robust. In the current analogy, (yes, there is one), the Fed’s meddling may be the human intervention equivalent of removing the wolf. Perhaps we will be a lot better off just letting nature run its course. Maybe today’s data will force the issue.
