Aug 21. You want something to cry about? How about Fed policy in 2005?

–You want something to cry about?  I’ll give you something to cry about.  I heard that one a few times in my childhood…
–Trump whined yesterday about Powell’s Fed raising rates, thus making a delicate job even more difficult. Some think Powell might counteract those comments with an extra dose of hawkishness, but as a responsible adult, Powell sees deterioration in EM and is likely to moderate forward guidance.
–It’s worth noting that upon release  of the Q2 GDP figures of 4.1%, Trump said the economy is on track for the best annualized growth in 13 years.  Now he complains about rate hikes; can’t have it both ways.  Thirteen years ago in 2005 the Fed was in the middle of a hiking cycle, which had begun from the initial FF rate of 1% in June 2004.  By December of ’04 the rate was 2.25%, on its way to 5.25% by mid-2006.  In 2005 the low yield on the ten year was 3.9%.  Trump should be commending the Fed for staying in its lane with its slow and steady policy.
–In any case, the day opened yesterday with a buy of 40k EDZ8 9737/9725/9712/9700 put condor for 4.5.  Looks like a new position.  Shortly thereafter a block buyer of 80k EDZ8 at 9739.5 sparked a buying scramble in the front end (likely related to Trump) with EDZ8 settling 41.  Late in the day buying of red and green packs helped to flatten the ED curve.  Red/blue settled at a new monthly low of -3 bps and red/gold just barely inverted, settling at -1/4 bp.  (Bostic yesterday said he would vote against anything that would invert the curve.  Too late Raphael).  The treasury curve was also flatter with 2/10 at a new low of 23.4 bps.  Yields dropped across the curve with tens -5 bps at  2.821%.
–A couple of additional option notes.  In April, the September bond options saw a large early-cycle trade with a sale of some 38k USU 143 puts.  Yesterday, there was a seller of about 6k USX 143 puts, likely an initial replacement for the Sept puts which are expiring worthless on Friday, having been in and out of the money several times.  However, vol now is at a lower level…  The other replacement trade concerns wing puts, with a buy of 100k FVZ 107.25p for 0.5.  There’s about 100k cumulative TYU puts open from the 106.5 to 108 lines; I would expect to see TYZ otm put buying before the week is out.
Posted on August 21, 2018 at 5:20 am by alexmanzara · Permalink
In: Eurodollar Options

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