Aggressive ease pricing sees a pause

June 5, 2019

–Having aggressively priced Fed easing over the past several sessions, interest rate futures pulled back yesterday.  The ten year yield rose 4 bps to 2.12%.  Green euro$ pack fell 5.5 bps (weakest on the strip).  However, October Fed Funds closed +2 on the day at 9801.0 or 1.99%, around 40 bps below the current Fed Effective.  If there is only one ease by September this contract will decline about 15 bps.  The press is pointing to Powell’s “act as appropriate” comments yesterday as providing support for stocks; the Fed is closer to an actual ease.  Powell mentioned trade negotiations, which will, of course, be the excuse for the coming rate cuts.   Obviously, shipping volumes have declined, starkly apparent in the share price of FedEx.  This stock made a high in early 2018 of 270 and closed out the year at 160.  It neared 200 in April of this year, but has revisited last years low since then, though it had a solid bounce yesterday, closing at 160.  Bear in mind that last year’s low in SPX was sub-2400 vs 2800 now.

–EDZ9 closed at 9802.5.  This contract is also reflecting several rate cuts by year end.  Large new buyer of 100k EDZ9 9762p yesterday, settled 5.25 ref 9802.5.  I’d be more inclined to sell that level with a delta hedge in FFV9.  

–Interesting comment on leveraged loan risk by CEO of BofA Moynihan “It’ll be ugly for these companies if the economy slows down and they can’t carry the debt and then restructure it, and then the usual carnage goes on.”  There hasn’t been much in the way of ‘usual carnage’ for a while. but the first part of that recipe, the slowing economy, is already occurring. 

Posted on June 5, 2019 at 5:14 am by alexmanzara · Permalink
In: Eurodollar Options

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