Feb 12. Something about Q3

–Friday’s lower yields disappeared on Monday, with tens backing up 2.9 bps to 2.659%.  However, out-of-the-money eurodollar call spreads continued to be accumulated.  Another 30k EDN 9762/9787 call spread bought for 1.75 (settled 1.5 vs EDU9 9736.5) and EDU9 9775/9787cs bought for 1 in size of 46k.  There was also a roll out of long midcurve June call spreads to July.  Sold 0EM 9800/9837cs and 2EM 9800/9825 call spreads to buy 0EN 9812/9837cs with the Short July trading 50k and settling at 1.5.  One interesting aspect of these trades is the Q3 target… buying of July and Sept expiry while June just sits.  These trades require aggressive Fed cuts for any possibility of going in the money.  As client JF notes, although rate HIKES have all been 25 bp increments, there’s a possibility of a 50 bp CUT if the economy tanks; the asymmetry of Central Bank Policy.  In some ways, these trades argue for a simple sale of EDM9/EDU9 spread which settled +0.5. Red June/Sept (EDM0/EDU0) is already -4.5. 

–The big news today is a tentative agreement to keep the government open, which is providing a boost to risk assets.  As mentioned over the weekend, a rapid one-two punch of a gov’t agreement followed by a China/US trade pact is NOT priced into risk assets. 

–CLH9 (March WTI crude) is currently up 60 cents over $53/bbl having bounced strongly off yesterday’s new recent low of 51.23.  Perhaps also worth a quick note is that Hang Seng has just surpassed the October high (from which almost all global markets sold off).  However, copper is lower today. 

Posted on February 12, 2019 at 4:55 am by alexmanzara · Permalink
In: Eurodollar Options

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