Dec 17. FOMC announcement and press conference today
–Once again yields fell in the US with tens ending -4.5 bps to 207, and the 30 yr bond down just over 4 bps to 270. Extraordinary volatility in several markets as the ruble plunged and crude oil continued lower. However, treasury implied vol marked the high of the day early in the morning and eased throughout the rest of the session. As noted yesterday, at the height of panic on Oct 15, the atm straddle with 37 days until expiration traded as high as 2’49. Yesterday the TYG 128^ with 38 days traded 2’11 early and closed 2’01. Obviously the panic isn’t at the same level, as Oct 15 lows in major US stock indexes are still far below current levels (though EM stocks are well through Oct lows).
–The big event for today of course, is the FOMC announcement and press conference. In the morning CPI is released, expected -0.1 with +0.1 Core. I think the Fed will remove “considerable time” and take pains in the press conference to note that there is not a specific timetable for the first hike. Yesterday, there was heavy buying of red midcurve Jan and March 9875 puts covered against EDZ5 futures 9918. Though straddles have become slightly elevated in red mids, this part of the curve could still see choppy and volatile trade. About a week and a half ago 0EH (short red March) 9900^ was trading 30.5, yesterday settled 34.5. If the Fed does not take out “considerable time” and highlights the drop in inflation due to energy, then reds and greens should lead the curve higher.
–On a related note, I saw a couple of pieces of research yesterday noting that Texas has created 40% of all new jobs, and that, since the onset of the crisis, total US job growth without the energy boom states of Texas and N Dakota would be negative. Going forward, the decline in the energy patch is going to cast a negative cloud on US economic growth.
