Dec 19. Nice put buys
–Big trade of the day in euro$’s was a buyer of EDM8/EDU8 for 9.5 to 10 in size of over 100k. Spread settled 9.0 on Friday and 10.0 yesterday. This trade is likely just a roll associated with the expiration of the EDZ7 contract. (which had a final settlement of 98.3745). Open interest -79k in EDM and +66k in EDU.
–EDH8 settled 9822.5, so the spread of EDH8 to libor is 15 to 15.5 bps. A similar spread to consider with respect to hike odds for the March FOMC meeting is FFG8/FFJ8 which settled at 17 bps. Hike odds about 2 out of 3 for March.
–The curve steepened Monday. One notable aspect of the move was the USH contract, which closed down 1-03 at 153-06. 30-yr cash bond rose 5.8 bps to 274.2. Last week there had been a buyer of around 50k USG 153p mostly at premium of 1’03 to 1’05. Friday’s settle was 0’61 vs 154-09; Monday’s was 1’23 vs 153-06. Tidy gain of 0’26/64s.
–I haven’t seen much mention of this, but as the year winds down it’s worth noting that the Fed’s QT program will kick up another notch in January, to $12b/month in treasuries and $8b/month MBS. The schedule was first announced in June and implemented in October (as per Sept FOMC). Not much effect so far, but keeping an eye on corporate spreads. By the way, end of year pension fund buying also running down.
–Speaking of which, there’s another BBG story on HNA (large China conglomerate) that’s having liquidity issues. One of HNA’s airline units scrapped plans for a 270-day debt offering (Tianjin Air). HNA owns 10% of Deutsche Bank; as of now no signs of stress reflected in DB. Maybe the ECB should buy some HNA bonds to replace the gap left by Steinhoff. :-l
