August 13. Get ready for containment strategies

–Turkish lira made a new low but US market taking it in stride.  TRY fell to 7 but rebounded slightly; last around 6.9.  China yuan also at  a new low, 6.88.  Well at least those two are at parity.  South African Rand plunged 10%.  Time to get out some duct tape and Krazy glue and try to repair this thing.
–In spite of Friday’s massive call spread exit in TYU, the ten year yield dropped 7.4 bps to 2.86%.  The sales were TYU 120/121 and 120/122 call spreads.  Open interest in the 120c fell 106k, 121c -44k and 122c -23k.  At the end of the day, 120c settled 35 (ref 120-12) right around the initial premium paid for the 120/122cs.  While these call spreads were exited, there was obviously new positioning in futures, as TY open interest went up 101k.   Fear is to the upside, and on the dollar curve, reds to greens and greens to blues (2nd to 3rd year and 3rd to 4th) are still slightly inverted.
–As mentioned over the weekend, EDZ8/FFF9 settled just 30 bps, right at the low end of the range.  Quite odd given stress in the european banking system related to Turkey, with new lows in a couple of the names mentioned in news reports on Friday (UniCredit and BBVA).  The Fed effective has been solidly anchored at 1.91 bps, and FFV8 settled at 97.865 or 2.135 bps, up only 1 on the day on Friday.  The spread between the fed effective and FFV of 22.5 bps indicates near market certainty that the Fed won’t be shaken from plans to hike in September.

–And don’t forget Venezuela, which is now at risk of losing Citgo: https://www.washingtonpost.com/business/judge-canadian-firm-can-go-after-venezuelas-us-refineries/2018/08/09/1398112e-9c43-11e8-a8d8-9b4c13286d6b_story.html?utm_term=.ecd341f69e87

 

 

 

Posted on August 13, 2018 at 5:11 am by alexmanzara · Permalink
In: Eurodollar Options

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