A bunch of f’ing bond traders

January 6, 2021

–Markets don’t like Republican loss of Senate control.  Stocks down, bonds down, dollar down.  Commodities are stronger: WTI over 50 (Saudi oil cuts), March Corn over $5, and bitcoin topped $35k. Tens are over 1% with TYH 137-08.  The modest threat of inflationary impulses may turn into palpable fear as the Fed has promised to stand by idly while a new government sees a mandate to spend and regulate.  ISM mfg prices paid at 77.6 (chart attached) soared in yesterday’s report and is near the 2018 peak…sign of things to come?
–Several trades from yesterday seemed to anticipate the move.  Buyer of 30k TYG 137.75/137.25/136.75 put tree for 3 covered 138-005.  Two and a half weeks to go for this one and the market is now right at the middle strike.  Buyer of at least 5k TYH 136.5/135.5 put strip with two of the 135.5 puts for 28 to 31; settled 30 vs 137-27.  The large short open interest in the 137 puts (both Feb and March) may spark more protective buying of lower strike puts.
–In eurodollars there was a buyer of 60k 0EU1 9975/9962p spread for 3.0, settled 2.75 vs 9979.5 in EDU2.  Recall that prior to the libor extension this contract had been trading in the lower 9960’s.  Also a buyer of 15k EDZ2 9950/9925ps for 2.25 to 2.5, settled 2.5 vs 9974.0.  
–When Bill Clinton was president, there was a somewhat famous quote from him, “You mean to tell me that the success of the economic program and my re-election hinges on the Federal Reserve and a bunch of fucking bond traders?”   Greenspan used the opportunity to make a deal with Clinton, indicating that the Fed would keep interest rates low if Clinton would rein in the budget.  It worked.  It’s different this time.
–In the current environment there’s likely to be a lot more pressure on the Fed (even more than there was from Trump) to monetize unbridled spending.  Strap in, it’s going to be fun.


Posted on January 6, 2021 at 5:01 am by alexmanzara · Permalink
In: Eurodollar Options

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