About fair

April 5, 2019

–Employment day with payroll growth expected 180k, a bounce from last month’s paltry 20k gain.  Little net change in prices yesterday, though Art Main summarizes option activity as follows: “We continue to see participants roll upside out in time and up in strike in front contracts.”  For example, there was a buyer yesterday of 30k EDM0 9800/9825 call spreads for 5.5 vs a sale of 20k EDU9 9750 calls at 7.0.  

–In reviewing levels across the curve, things look fairly priced.  The first three one-year euro$ calendars are -25 to -25.5, so around 1/4% easing priced for any given year.  EDM9/EDU9 settled -6.0, and August/Oct Fed Funds spread (which prices odds of a Sept ease) settled -6.5, both indicating about a 25% chance of a cut in fall.  June midcurve atm straddles are between 20 and 23.5 bps with a bit over 2 months to go, probably about right if not a bit on the high side given the bias towards an ease already priced in the calendars.  The bund yield is gravitating around zero, leaving further adjustments in the hands of the weakening euro.  Strength in the dollar index keeps a deflationary pall over the market, and while USD is one signal of tight financial conditions, declining forward interest rates, tight corporate spreads and levitating equities argue the other way.   The on again/off again trade deal with China is drawing closer to resolution. 

Posted on April 5, 2019 at 5:12 am by alexmanzara · Permalink
In: Eurodollar Options

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