EDZ2 going out with a bang?
December 12, 2022
–Stocks and bonds both closed Friday on a weak note. Ten year yield up 7.2 bps to 3.565% with three- and ten-year auctions today. Yellen says inflation is coming down, noting shipping cost declines, delivery times are improving and gas prices are lower. CPI released tomorrow.
–EDZ2 expires one week from today, and there can still be fireworks associated with (libor-based) expiration. This morning EDZ2 is exactly at the 9525 strike with 58k calls open, and another 97k open in the 9531.25c (0.75 settle). The spread between SFRZ2 and EDZ2 has collapsed to just 22.5, down 30 from a little over a month ago when it traded 53. EDZ2 futures still have 1.3 million open. EDZ2/H3 settled at a new high of 37.25, up 2 on the day. There are a lot of exposed shorts in EDZ2. While Wednesday’s FOMC is locked for 50 bps, hints for the February 1 meeting can still influence EDZ. Many analysts expect the Fed will end its hiking campaign some time in 1H of 2023 and hold rates high for a while. FFN3/FFN4 settled -126 bps, so into the end of next year the market clearly forecasts eases.
