May 8. Selling exhaustion Thursday; payrolls today
–After the rate surge early yesterday morning, the rest of the day was mostly about squaring positions. Call it selling exhaustion in rate futures. For example, the bond contract had an outside day reversal, lower low for the move, higher high than previous day and higher close. Blue eurodollars had a range of 15 bps and closed near the highs. Implied vol, which had rallied on the break, was heavily exited as the day progressed. ATM ten year straddle in July went from 2’17 to 2’10. The 30 yr June atm bond straddle went form 3’50 to 3’22, vol from 14.6 to 13.3.
–Today’s action will be dominated by the employment report, expected 220-230k with a rate of 5.4%. Again, the bulk of the move is likely already behind us. After yesterday, there are very likely bad shorts just praying for the opportunity to lighten up if the number is bearish.
–In euro$’s, some of the calendar spreads had been strengthening for 7-8 days in a row…same with treasury spread like 2/10. Yesterday the air came out. For example, 2/10 had moved from 138 to 160.7 in eight sessions but yesterday fell back to 155.2, down 5.5 on the day. However, near one yr eurodollar calendars continue to close at new highs. For example Dec’15/Dec’16 closed up 1 at 90.0, the ninth day in a row without a negative close…it was 70.5 on April 24. These spreads are likely to pull back or at least pause, no matter what the data is.
–In euro$’s, some of the calendar spreads had been strengthening for 7-8 days in a row…same with treasury spread like 2/10. Yesterday the air came out. For example, 2/10 had moved from 138 to 160.7 in eight sessions but yesterday fell back to 155.2, down 5.5 on the day. However, near one yr eurodollar calendars continue to close at new highs. For example Dec’15/Dec’16 closed up 1 at 90.0, the ninth day in a row without a negative close…it was 70.5 on April 24. These spreads are likely to pull back or at least pause, no matter what the data is.
