April 24. Stopped short

–The ten year note yield stopped just shy of 3% yesterday, and as shown on chart below, the 5 year yield is within a few bps of the 50% retrace between the 2007 high and 2012 low (2.875).  However some ED contracts still made new lows, and near FF contracts did as well.  For example, FFN8 closed at 9807.5 or 1.925%.  The Fed effective is currently 1.69%, so July is only 1.5 bps from what would be the new rate when the Fed hikes at the June FOMC.   Jan’19 FF closed 9874 or 2.26%, with odds of 3 more hikes into year end steadily increasing.  Near euro$ calendar spreads posted new highs, with EDM8/EDM9 at 48.5, up 10 bps in the last 7 sessions.  EDZ8/EDZ9 closed 35, also a recent new high, with strong resistance at 38.5.

–Two year auction today.  Between the 2,5, 7 and 2y FRN auctions there’s just under $110 billion being auctioned in 3 days, however the new cash raised (according to TBAC) is just $5.6 billion.  Worth noting however, that 3, 10 and 30 year auctions next month total $72 billion with only $39 b maturing, so $33 b in new cash.  THAT will be a test.

–Dollar strengthened to a new 3 month high yesterday and appears to have found a longer term base.

–Exit buyer of 150k EDM8 9825 c yesterday for 0.25.  I believe this covers the short leg of the 9800/9825 c 1×2 that was bought vs 0EM 9800c.  Both EDM and 0EM 9800c also closed 0.25, but the general theme of the trade continued to be placed using lower strikes and moving into July maturities.

–New Home Sales and Consumer Confidence this morning, followed by 2 year auction.  One more comment about upcoming auctions.  I had seen a paper by a bank expecting the tax package to cause continuous buying in longer dated assets to fill underfunded pension plans.  It was a fairly bullish thesis.  However, supply of debt (both corporate and government) still seems to have the potential to overwhelm this demand.

Posted on April 24, 2018 at 5:27 am by alexmanzara · Permalink
In: Eurodollar Options

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