Double Vision

May 11, 2020

–January 2021 FF contract trades 99.985 this morning, having notched a high of 100.04 on Friday.  Peak contracts June and July ’21 still trade above 100, with yields of -1 bp.  The Fed announced that Powell will address the economic situation on Wednesday, which caused afternoon profit-taking in short-rate futures.  Peak euro$ contract on Friday was EDU21 which settled 99.82 or 18 bps and is currently down 1.  The late week FF breach of 100 jolted euro$ options into the realization of un-capped prices with a fresh reminder of market turmoil regarding negative oil futures.  For example, on Wednesday, EDU21 settled 9975.  This is long dated, just under 500 days until expiration.  On Wed, the atm 9975 straddle settled 24.5 and the 9987.5 straddle at 29.5.  With Friday’s close of 9982, the 9975^ settled 30.0 and the atm 9987.5^ at 32.5. (Thanks Brent C).  

–5/30 closed at a new recent high of 106, just shy of the March spike high of 110.  On Friday, twos FELL 3.2 bps in yield to 14.9, while 30’s ROSE 6.3 to 1.382%.  Treasury auctions of 3s, 10s and 30s on tap this week. 

–It all comes back to WeWork and oil.  An article on Reuters reports that Saudi Arabia will increase its VAT tax from 5% to 15% and suspend a cost of living allowance, after the kingdom  posted a $9 billion deficit in the first quarter.  Austere.  The plunge in oil demand and prices has complicated the future for KSA and its Vision 2030 strategy (“The Investment Powerhouse Hub Connecting Three Continents”), meant in part to diversify away from oil.  Of course, a key pillar of that initiative was the great early success of bankrolling Softbank’s Vision Fund.  But that took a loss last year of $12.5 billion on the back of the WeWork implosion.  Can’t they just print currency and give it to everyone?  I guess it’s not that easy when you don’t possess the reserve currency.  Oh great, now we have to worry about the Middle East being destabilized.   
https://www.reuters.com/article/us-health-coronavirus-saudi-economy/saudi-arabia-to-raise-vat-threefold-suspend-cost-of-living-allowance-idUSKBN22N05M

Saudi Arabia to raise VAT threefold, suspend cost of living allowance – ReutersSaudi Arabia’s government is suspending the cost of living allowance and raising the value added tax threefold, as part of measures aimed to shore up state finances, which have been battered by …www.reuters.com

https://vision2030.gov.sa/en

Posted on May 11, 2020 at 5:50 am by alexmanzara · Permalink
In: Eurodollar Options

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