Risk assets at risk
December 7, 2022
–Tuesday featured a more inverted curve as buying in long treasuries was spurred by equity and energy weakness. SPX down 1.4%, Nasdaq -2% and CLF3 settled 74.25, down 2.68 and is lower this morning. The two year note fell 4 bps to 4.35%, while tens fell 8.5 to 3.511% and thirties down 9.3 to 3.52%. New cycle low in 2/10 to -84. New low in 5/30 at -21. On the dollar curve, another new historic low in ED red/green pack spread to -87.875.
–Early trade dominated by an initiating buy of 100k TYH3 put condor, 113.5/112.5/111.5/110.5 for 11, initially covered 114-01 with 5 delta. Settled 10 vs 114-115. Later in the session as stocks wobbled, there was a new buyer of 20k FV week-3 109.5c (23s vs 108-3025) and 30k TY week-3 115.5c (35s vs 114-115). Week 3 options expire 12/16, just after CPI and FOMC. Implied vol was boosted, esp in high-gamma near maturities. TYF3 114.25 straddle settled 1’53 vs 114-115; I marked it a new recent high vol over 9. December midcurve options also expire Dec 16. 0EZ 9525^ settled 30 vs 9529, 2EZ 9662.5^ 29.5 vs 9667.0 and 3EZ 9687.5^ 28.0 vs 9691.5. Dec’23/Dec’24 1-yr calendars in both ED and SOFR are -138 bps.
–The age-old guns vs butter debate seems to be shifting heavily to the former. ZH reports the US Army is dramatically increasing production of ammo due to depletion, and the Raytheon CEO has been talking about the critical need to replace inventories of Javelin and Stinger missiles, most recently on Squawk Box yesterday. YTD RTX +13.5%, AAPL -19.5%.
–News today includes Nonfarm Productivity and Unit Labor Costs, and Consumer Credit at end of day, for October, expected $28b.
