August 11. Strong payrolls? So what?

–Amazingly enough the US ten year note has almost completely retraced the sell off from last Friday’s employment report, and at 173-15 settle, USU is actually higher than it was one week ago on Thursday, just prior to the NFP report (173-05). The German Bund contract (RXU6) closed at a new high settlement of 167.84.

–Three month libor on Wednesday was 0.8176, or in futures terms 99.1824.  EDQ6 expires on Monday to the Libor setting.  It settled yesterday at 99.175 or ¾ bp difference.

–Yields fell across the board, and while the flattening was slight, it was enough to cause new lows in red eurodollars to deferred contracts.  For example, reds greens settled at 12.25… less than 1/8th percent! (down 0.5 on the day)

–30 year auction today; the demand for duration continues unabated. The ten year note yesterday was auctioned at 1.50, the lowest since 2012.  This is only tangentially related, but in 2012, Core CPI in Norway was around 1% yoy.  Yesterday it was 3.7%, a new high.  Is it simply impossible for inflation to accelerate in the US?  Perhaps so, as…

…Oil was very weak again yesterday, plunging 1.27 late to 41.50.  Again, using a continuous contract, 50% of the year’s move is 38.86, which provided support in the beginning of this month and should continue to do so.

–Still heavy buying of front ED puts, though both EDU6 and EDZ6 closed higher on the day.  EDU 9912/9900ps which was bought fairly heavily for 4 on Tuesday was bought for 3 yesterday and settled 2.75.

–The increase in libor has been a tightening.  However, in terms of an actual increase in the FF target by the Fed, the Dec FOMC is still the meeting favored by the market.  Nov/Jan FF spread closed at 6.5, so around a 25% chance of a hike at the Dec meeting.  However, consider the outright price of April 2017 Fed Funds: 9948.5.  There are 5 FOMC meetings prior to this contract, yet there’s a spread of less than 12 bps to the front August contract.  As an aside, October FF were the most heavily traded FF contract yesterday with featured buying at 9957.5…open interest was up nearly 6k.

Posted on August 11, 2016 at 5:23 am by alexmanzara · Permalink
In: Eurodollar Options

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