Dec 31, 2013. Happy New Year!

–In spite of the holiday period, there have still been some large trades going through euro$ and treasury options, all leaning bearishly.  For example, 0EM (red midcurve june) 9937/9925/9912/9900p condor was bought, bringing the position to over 100k (settled 2.5 ref 9934.0). There was also a buyer of 2EG (green feb) 9862/9837/9812p fly with 9850-9812p condor, at least 25k of each.  The put fly settled 5.5 ref 9859.  Normal curve roll would render these positions worthless, but robust employment data and the FOMC meeting at the end of January could still move perceptions of Fed tightening forward.  Of course, given large outright longs (buyer of 30k EDM15 Friday 9932-32.5), these positions could also represent protection.  A three month roll of 15 bps on 30k M’15 futures would net 450k bps, more than covering 300k bps spent on the midcurve June put condor which would still maintain some value three months hence.  Simple.  Unless the bottom falls out.
–Odds of a huge downside rout aren’t large, but certainly are growing.  For example, I watch the ten year note to ten year inflation index note, which I marked yesterday at a new recent high of 225.  The high of the year was 260 (April) and it ended last year at 250, so the current reading is still quite tame.  On the other hand, the market doesn’t really seem to share the Fed’s concern about deflation, and an uptick in monetary velocity for whatever reason, would be like lighting an inflationary match near the huge pile of parched tinder known as excess reserves.
–News today includes Chicago PMI, expected 61.3 from 63.0, and Consumer Confidence at 76.8.
–Happy New Year

Posted on December 31, 2013 at 5:12 am by alexmanzara · Permalink
In: Eurodollar Options

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