August 3. When in doubt….sell vol

–Vol was hammered in treasuries as yields slipped and the curve flattened slightly.  Tens -1.2 bp to 225. The drop in premium was especially notable in USU, where the 154 straddle opened the day trading 2’32 and closed at 2’22, taking implied from 8.2 to 7.6.  The fall in vol is somewhat directional with the curve as, for example, 5/30 dropped 2.6 bps to 102.8.  There were early block buys of TYU and the Ultra Bond (WNU7), the latter at a price of 165-22 for just under 7.5k ($2.18mio bp).  The contract settled at 166-09, a move of about 2 bps.  Open interest in the contract rose by 6895, suggesting new long, although some of that was in WNZ as a Sept/Dec roll was sold late in the day.

–There were other trades that also suggest a flatter curve/ narrowing ED calendar spreads.  For example +30k 2EH 9800/9825/9850 call fly bought for 4.5.  (Settled 4.5 ref 9802 in EDH0).  Like almost all other calendar spreads in dollars, EDH8/EDH0 (front March/Green March) is as low as it’s been since November at 44.5 bps.  The high in this spread in the Trumpian afterglow in December was 84.5, so there’s already been significant flattening.

–DXY made a new lows as the Euro exploded as high as 1.1910.  It’s especially strong against CHF; EURCHF was 1.1015 on July 24 and was 1.1510 yesterday, a move of 4.5% in a little over a week.  Interesting side note (thanks AOK), EM FX vol is below that of G7.

–An article on ZH noted that the Treasury Borrowing Advisory Committee has some concerns that the Fed’s balance sheet adjustments might not be as smooth as advertised.  According to the TBAC, the “amplification from normalization could possibly come from wider credit spreads and be transmitted to equity buybacks and valuations.”   This is pretty much an overt recognition that stock buybacks have been a major prop, and they’ve been financed with cheap debt.

–Saw several stories yesterday that AMZN was hiring 50k seasonal workers starting now.  Will it kick up payroll data?  Ironically, I also saw a story that China’s largest ‘smart warehouse’ is manned by robots, working day and night (Alibaba).  Perhaps the days of ‘seasonal hiring’ are coming to an end.

–Jobless Claims, Factory Orders +2.7 and Service ISM 56.9 expected.

Posted on August 3, 2017 at 4:57 am by alexmanzara · Permalink
In: Eurodollar Options

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