August 22. Tentative safe haven bid

–As stocks appear increasingly vulnerable, safe haven markets butt up against resistance levels without quite being able to break through. Chart below shows gold, TY future and JY (used future for purpose of the chart). All are near the highs of the calendar year; right around previous highs in April and June.
–In terms of interest rate trading, there was heavy volume buying in EDZ18. Likely short covering as prelim open interest shows a decline of 45k. In fact, EDM8, U8, Z8 and H9 all showed OI drops (-25k, -22k, -45k and -13k) as reds were the strongest part of the curve closing +2.0. This caused EDZ7/Z8 to close -1 bp at 24.5, and EDH18/H19 to close at a new low of 21.0.
–New longs were visible on the longer end of the curve, with large buying of November TY calls. Interestingly, Nov being bought rather than Oct; expiration dates are Sept 22 and Oct 27. TYX 127.5/129cs 22/23 paid 30k (OI +23k, 24s ref 126-17+). Also buying in TYX 127/129/131 c fly (new position 25k, 24s). The 127 strike is approx 2.12% and 127.5 206.5% versus ten year close of 218, which was -1.4 bps on the day. DV01 of TYZ is $81.50.
–Taking it together, ‘abandon shorts as the Fed sits on hands, but enter capped longs in tens for continued curve flattening.’ At least, that’s what the activity of Monday suggested.

Posted on August 22, 2017 at 5:27 am by alexmanzara · Permalink
In: Eurodollar Options

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