Dec 19. FOMC day

–FOMC decision with strong expectations of a dovish hike.  Feb/April FF spread settled at a new low of just 4 bps, and May/July settled at the same level of 4, so March and June hikes have been shaved to odds of less than 20%. In euro$’s near spreads made new lows, with EDH9/EDH0 collapsing by 4 bps to 2.5; now the only one-year spread that has a PLUS sign in front of it until Dec20/Dec21 which settled +0.5.  The nadir is EDZ9/EDZ0 at -12.0 (though there was decent buying in that spread yesterday at -9.5).  Red ED’s led the move higher yesterday, closing +8.5 with Greens +7.875 and Blues +5.75.  The ‘new’ red/gold euro$ pack spread settled at a new high of 11.375, gaining 4.25 on the day (New because both packs now start with March contracts).  In short, the market is telegraphing a dovish hike: near calendar spreads have flattened considerably and the more deferred part of the curve has steepened.

–Yields continue to move lower as oil plummeted and stocks fell.  Ten year is on support around 2.80% yield.  The spike lows in yields in late May were associated with the Italian turmoil and the possibility of leaving the Euro.  Treasuries have held that level, but back month ED’s are through those levels from EDM0 back.  Oil was down $4 bbl at one point, with CLG8 closing -3.60 at 46.60.

–Vols jumped in euro$’s ahead of today’s FOMC and stock market volatility. 

–Below are charts of five and ten year treasury yields.  Holding low spikes in May.



Posted on December 19, 2018 at 5:12 am by alexmanzara · Permalink
In: Eurodollar Options

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