Dec 26. Heightened volatility in 2014?

–Green eurodollar pack continued to lead the way lower in interest rate futures Tuesday, closing down over 7 bps (average price 98.06 or just under 2% yield).  There continues to be heavy put buying on the EDH16 contract, notably 40k 2EH 9800 puts at a premium of 4.0, new position.  Red/green pack spread made a new high for the year, just under 111 bps.  In fact, red/green pack spread closed higher than green/blue pack spread for the first time since mid-September as the market pushes the timeframe for a possible Fed tightening forward. (In other words, red/green/blue pack fly has gone positive, to +1, with red/grn 111 and grn/blu 110).  It makes sense for the market to focus on the green pack which is two years hence, as a period when low rates come to an end.  But nearer spreads are also making new recent highs, for example EDZ14/15 rose 4 bps to 72.  The market has a way of testing the resolve of new Fed chiefs, and a dollop of increased uncertainty appears to be drawing nearer.
–Ten year yield rose over 5 bps but still remains below 3% at 2.98.
–Another topic which bears mention is a couple of instances of “fat finger” problems encountered in the last couple of days, notably a five point move in the US thirty year bond contracts in the middle of the night, and a jump in copper futures on Tuesday. Both contract highs were adjusted lower. The exchanges and the market in general have been complacent with heavy volume, and algos “keeping things in line”.  Certainly part of it could be due to thin holiday markets.  But it also might be a sign of things to come in 2014.

Posted on December 26, 2013 at 4:42 am by alexmanzara · Permalink
In: Eurodollar Options

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