April 7. Liquidity considerations

–In today’s 10 minute news cycle, the missile launch on Syria was absorbed by the markets without collateral damage.  Though treasuries spiked, gains subsided, and while stocks initially broke, the overnight range doesn’t look like anything out of the ordinary.  Gold made a new high for the year and seems likely to hold, a comforting throwback for hard money aficionados, but a relatively muted move on the whole.

–Now we turn to this morning’s employment report, with NFP expected 175-180k.  Overnight spike highs in treasuries are likely to cap the upside (for the morning anyway).  Then perhaps some news will seep out of the Trump/Xi meeting.  I’m not sure what the implication of the Syrian strike is for N Korea, but odds of something stupid happening are edging higher, and I would suspect there’s an underlying flight to quality bid for UST late Friday going into Easter week.

–One interesting observation from yesterday is that EDM7 closed at the low of 9869.5.  It’s only a change of 1.5 bps, however, the liquidity in the contract seems to have diminished quite a bit, with only a few thousand contracts per side at various points in the day.  Perhaps it’s just related to news that Yellen is giving a previously unscheduled speech on Monday, but it’s also worth giving liquidity considerations some thought before drilling premium into the ground.  (On a related note, as the Czechs dropped the Euro peg, an article on BBG noted that the CB had warned “…that investors may struggle to find counterparties to cash out their positions.”).

–The other aspect about the front end of the curve is July FF’s having closed at 9894.0, a new low which indicates a 2 in 3 chance of a hike in June.  Is it plausible that the Fed, like Trump, is going to be a little less predictable in an effort to stanch the leaks?   Anyway, there are still 840k open 9862 puts in EDM7 against 1.4 million futures.

–Once again weakness in the front translated into new lows in near one-year euro$ calendar spreads.  EDM7/EDM8 closed -1.5 at just 39.5.  A couple of weeks ago all the near one year spreads were clustered around 1/2%, and are now getting comfortable with 3/8%.

Posted on April 7, 2017 at 5:27 am by alexmanzara · Permalink
In: Eurodollar Options

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