Dec 11, 2018. Confidence crumble

–Ten year yield rose by just 1 bp yesterday to 2.854%.  The eurodollar strip was up 2-2.5 out to the first three years.  However, the red/green pack spread notched a new low, closing down 0.25 bp to just under MINUS 8.  Weakness in EDZ9 continues, with that contract being the cheapest on the strip in terms of price at 97.115, and in terms of butterflies (as shown yesterday).  New low as well in EDZ8/EDH9 with heavy buying of EDH9 calls.  For example, there was a new buyer of 60k EDH8 9725c (6.75s) vs 0EJ 9750/9762 call spread (8.0s, 5.75s for spread of 2.25).  Trade requires a skip at the March FOMC, although if the Fed panics and stands pat in December, front contracts should explode higher.
–News today includes PPI, with Core yoy expected 2.6%, followed by 3 and 10 year auctions.  Just a reminder, this week’s auctions of 3,10, 30 bonds raises $54 billion in new cash; Treasury auctions aren’t simple rollovers these days.
–Prior to other data, the NFIB releases small business optimism, which has been steadfastly strong and correlated (as the attached chart shows) to the Russell index.  However, since topping in September, the Russell has retraced halfway from the election dip to the high in September.  We’ll likely see a corresponding dip in confidence.
Posted on December 11, 2018 at 4:57 am by alexmanzara · Permalink
In: Eurodollar Options

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