April 29. Stocks bounce back despite BofA’s accounting error
–Interest rate futures remain painfully quiet, with miniscule net changes, though 5/30 was finally able to steepen by just a couple of bps to 173.4 as five year yield was unchanged and 30 yr bond rose 2 to 346. Red/gold eurodollar pack spread up 1.75, closing just under 261.5.
–There were a couple of trades suggestive of paring back tightening bets, for example about 7k FVM 119.75 straddles were sold (off strike as 5’s are around 119.25 strike). Also a buyer of Green June 9937c vs 9925p (sold put on ratio +3/-2). As we go into Wednesday’s Fed announcement and Friday’s employment report, EDM6 trades around 9830 this morning, having settled 9832.5. At the March FOMC meeting the contract settled 9828.5. It subsequently chopped around at slightly lower levels until the employment report, when it rallied and settled 9827.5. It continued higher to over 9850, but has now fallen right back near the 9825 strike. This contract has by far the most put open interest, with 760k May expiry puts and over 2 million in June.
–BofA fell 6% yesterday due to botched arithmetic causing the Fed to halt its buyback and dividend payout program. However, weakness didn’t really spill over to the other financial names, though I would note that GS is around 12% off the year’s high and Citi about 14%.
