Feb 2, 2018. The bond groundhog sees his shadow

–Big day yesterday in front of today’s payrolls. NFP expected 175-185k and Avg Hourly Earnings +0.3. Yields rose and the curve steepened on large volume. Implied vol firmed. Total ED volume was 4.77m and open interest was up 217k. TY volume 2.1m with open int +61k. The ten year yield jumped 5.5 bps to 277.3 and the 30y bond gained 6.7 to end just thru 3%. Put buying continued after the floor close, for example a buyer of 30k 0EM 9725p for 6.0.

–All ED calendars once again posted new highs. EDH18/EDH19 settled 60 bps (should be resistance around 65/66). EDZ8/EDZ9 settled 34, +3 on the day. There was heavy buying of EDZ9/Z0 for 10.5 (30k), came back to settle 10.0 but that’s still a new high, with Z/Z/Z fly 24. Red/green ED pack spread started January at 8.5 bps, just a month later it’s 19.0.

–I just took a quick skim of news this morning, but the impression that I get is that the world is shunning bonds. HYG and JNK had terrible days yesterday; gap open lower, closed at the low and now testing the spike down from late November. There’s an article on ZH (citing Citi) that notes both private individuals and banks in Italy are selling sovereign bonds in front of the election, to the ECB of course. Another article says the BoJ offered to buy unlimited JGBs for 11 bps. To top it off, Benoit Coeure said “The next crisis may well force the ECB to test the limits of its mandate.” (RTRS) Way to boost confidence Benoit!

–At the beginning of last year several high profile investors warned about a possible stock downturn. There have been several warnings about the ‘bond bubble’ recently as well. While stocks have absorbed every shock gracefully, the bond market feels rather unruly. Today’s data may not make much difference, there’s likely to be a wall of offers on any rally.

Posted on February 2, 2018 at 5:20 am by alexmanzara · Permalink
In: Eurodollar Options

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