Forced short-cover in treasuries as equities swoon
Sept 21, 2021
–Concerns about Evergrande contagion and the FOMC caused SPX to decline 1.7% and Nasdaq -2.2%. Interest rate futures rallied and the curve flattened. Tens fell 6 bps to 1.307%. In dollars, whites +0.375, reds +3, greens +5.75, blues +7.125 and golds +7.5. While ED open interest was modestly higher, every treasury future except the two-year saw declines in open interest as shorts were forced to re-evaluate in the face of equity weakness. Most notably, FV open interest declined by 23.5k and TY by 59k. October options expire on Friday, and TYV 133.5/134 call spread which was originally bought for 10, settled at 9 vs 133-085.
–Eurodollar options fairly quiet, though there was an exit sale of 20k 3EV 9850p at 5.0 to 5.5. (Settled 5.5 vs 9858 in EDZ4, options expire 15-Oct). There was also small buying of EDZ1 9975p for 1.0. However, in spite of possible credit issues associated with China, 3m libor is anchored at 12.5 bps, so a buy of puts with a 25 bp strike almost seems misguided…that’s what is has come to.
–New low in 5/30 just under 103 bps. The pressure is apparent in front of FOMC tomorrow. Equities and oil bouncing this morning…
