Sept 29. Out of ideas
–Main feature of yesterday’s trade was curve steepening, with notable buying in near eurodollars. Open interest fell in most contracts, suggesting end of the quarter unwind of flatteners. Whiles reds (2nd year) were +3.25, golds (5th) were down 0.5; the red/gold pack spread closed at 48.25. Still low, but a solid bounce over the last two days.
–There has been consistent buying of Nov TY 124.5 puts, which continued early in yesterday’s session (actually on Wednesday night; in the good old days would have been done on the floor in the Night Bond session!). In any case, I think prices were 14 and 19 paid in decent size. Open interest was up 30k to 145k, the most OI of any put on TY. TYX 124.5p settled 10 vs 125-17+. I reckon that strike to be about 13 bps away, roughly 2.43 to 2.44% on tens (closed 230.7). Against this, there continues to be selling of TYX 123.5p, settled 3. For the sake of comparison, TYX 126.5c settled 14 with a 25 delta, and 126.75c at 11 with 20d. Even though the open interest in puts is high, it’s not as though there’s a mad reach for puts relative to calls.
–Odds of a December hike remain at about 2 in 3 according to Jan Fed Funds. There was a seller yesterday of October ED 9850 straddle at 3.0 vs EDZ7 9851.5. That’s like the Seinfeld joke where a driver honks his horn at a pretty girl walking by…”There’s a guy who is out of ideas.” I’ll just sell this straddle and capture the 1.5 bps of time decay in the next two weeks.
–Personal Income and Spending expected +0.2 and +0.1 with Core PCE prices yoy expected at a tame 1.4%.
