April 12. I musta got lost….now I hold a losin’ hand

–Brief mentions of many changes this morning, as yesterday was a big day indicating a sentiment shift.

–Market is starting to sit up and take notice of geopolitical events. Many signals of a moderate increase in stress.  Implied vol went to new highs for the year in VIX, Gold.  Also, the spread between Italy and German bund posted a new high of 207.7, highest since early 2014.  Skews in treasuries blew out with demand for calls.  For example TYM 124/127 combo  covered 125-16 was 8/9 late in the day….it had been more like 5/6 a week ago, as TYM 127 calls were bought in size.  TYM 127c now claim peak open interest (in calls) at 177k, having added 39k yesterday; settled 30/64 ref 125-155, 29 delta.

–July FF traded up to 9896…a small shave in odds of hike in June.  The move from 9894 to 96 takes odds from about 65% to 57%.  Additionally, many calendar spreads made new lows on the dollar curve.  For example, EDM7/EDM8 plunged 5 bps to settle 37.5.  Interestingly, the peak one-year spread has slid back on the curve to EDZ7/EDZ8 which settled 38.5 and unseated EDM7/M8. So now the nearby 1-yr spreads are clustered at 3/8% and taper from there.  New low in red/green euro$ pack spread at 28.375.  NY Fed’s Simon Potter’s speech last week was pretty concerned with monetary policy transmission signals from FF’s; the market is transmitting a message that it’s back on the ‘one-to-two’ hike a year schedule.

–While equities came all the way back from a morning swoon, fixed income maintained a solid bid, rallying in the face of the ten year auction, with 30’s coming today.  Fives and tens are at the lower bounds of 4 month ranges (in terms of yield).  Either these levels hold, or there’s likely to be a fairly violent adjustment lower.

*The subject title is taken from lyrics of the J Geils Bank


Posted on April 12, 2017 at 5:24 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply