Dec 18. F L A A A A A T

–The main feature of yesterday’s trade in the aftermath of Wednesday’s hike was a flatter curve.  Front contracts were pressured by the prospects of further hikes and position exits.  First four quarterly euro$ contracts saw open interest decline by 55k; buyer of 100k EDF 9950 puts for 1.0 also an exit (White pack -1.75 on the day).  However, the back end is being supported by weak data (Philly Fed -5.9 following contraction in Industrial Production), and by the continued trend of weaker commodities.  Gold was down $25, oil is at new lows, copper testing new lows (though it has bounced this morning).  Outcome: reds (2nd yr) closed -1.5 bps and golds (5th year) closed +6.25, leaving the pack spread at just 93.375 bps, the low of the year. (This is with contract roll using March as front).  5/30 also at new recent low 121.5.  Ten year yield fell over 5 bps to 2.234.
–Implied vol in interest rates is falling like a stone.  On Monday the atm USH straddle (156) settled 6’09.  Yesterday the 155 straddle settled 5’22.
–Going into today’s equity option expiry, stocks fell, and are slightly lower this morning.  The BoJ modestly supplemented QQE, extending the duration of bond buying, etc.  Japanese stocks initially rallied but then closed lower.  In the US, high yield etfs HYG and JNK again turned down.  While the FOMC announcement itself saw scant turbulence, the relentless rout in energy and metals, and associated outflows from high-yield are threatening a nasty spillover.

 

Posted on December 18, 2015 at 5:10 am by alexmanzara · Permalink
In: Eurodollar Options

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