April 25. Russia downgrade to “churlish”
–Fairly quiet day yesterday in rates with little net change. Early weakness after data was easily absorbed. Now with S&P downgrade of Russia just as May treasury options expire, 30 yr bond is testing the 135 strike and there’s even a chance of TYK 124.5 calls coming into play as weekend risk of a military “accident” grows. TYM current 124-05.
–There was a buyer (exit) of about 15k Green Sept 9800 straddle for 48.5. Treasury vol was firm, though there was some July straddle and strangle selling with TYN 123 ^ sold a few thousand times at 149.
–Next week should be fairly interesting with the FOMC announcement on Wednesday afternoon and the employment situation Friday morning. It’s likely the Fed will have a very good idea of Friday’s data, and the premise that slow activity was due in part to “adverse weather conditions” as mentioned in last statement appears to have been supported by improved data. So, it should mean that tapering continues right on schedule with concurrent repetition that it “likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends.” In a way, one would conclude that steepening should be the natural market outcome. But that’s not the current trend as bond shorts are subjected to the frog boil. The water was tepid earlier in the week, but small bubbles are starting to rise to the surface.
