June 20. Summer solstice….bonds always go down at this time of year, right?
–When I walked onto the old CBOT trading floor as a kid, the 30 year bond futures pit was IT, crammed with people for the 8 o’clock open. 8% notional coupon and traded well below par. Five year options pit had a few guys from Beverly that barely knew the difference between a put and a call. Unfortunately, we’re never going back to that. However, the 30 yr did show a spark of life yesterday…
–5/30 spread steepened 6.5 bps yesterday and appears to have bottomed. 30 year bond contract (US) had an outside day and closed lower, settled 135-08. A close below 134-16 would indicate substantially more downside. At odds with this bearish outlook on the long end is the fact that bond vol closed slightly lower with USU sub 7%. I would be a buyer of bond vol here. 30 yr yield was up 4 bps to 345.6.
–Though not as pronounced as the treasury curve, there were some steepening plays in dollars as well. For example, Blue Dec (3EZ) 9650/9675ps was bought vs 9775/9800cs sold for 2.0 vs 9715.5…new position in size of 40k. However, vol lower overall in dollars as well. For example, Green Sept 9812 straddle was 37 settle Tuesday, 35.5 trade pre-FOMC, and settled 33 yesterday having been sold heavily at 33.5.
–Red/gold pack spread closed up 2, just under 222. A minor bounce off the lows, but again, probably a low risk area to nibble at buying curve.
–Big movers yesterday were precious metals, with gold and silver going parabolic, gold up $49 or about 3% and silver up around 5%.
–July treasury options expire today.
