Feb 20. Markets position for today’s Greek/German negotiation and next week’s testimony by Yellen
–The standoff between Greece and Germany continues today with a meeting at 9 EST (that will probably lead to an extension into next week). The dollar was generally firmer yesterday, EM currencies are still under pressure, with Brazil for example, nearing a new low.
–In US rates yesterday, implied vol continued to press higher. Buyer of 8k TYM 130c for 41 covered TYH 127-25 (or 127-03 in TYM), adding to longs, 53k in open interest this morning. Also some new long positions in dollar options. However, yields were higher on the day, with tens rising 5.5 bps to 211.5 and eurodollar calendar spreads posting new highs. Red/gold pack spread rose 3.625 to close above 130, and 2/10 was up 3 bps to 149.4, both new recent highs.
–I would think that firmness in the dollar and in implied vol in treasuries might be defensive posturing for a negative outcome at today’s meeting, but if that were the prime motivation then yields should have had a downward bias. Going into next week’s testimony by Yellen, the treasury market is under pressure, leaning toward a hawkish tone.
–In dollars, blue straddles are bid relative to greens. For example, 3EH 9762 straddle settled at 25.5 while 2EH 9812 settled 23.5. Three weeks to go for the March midcurves. So far in the month of February the range in EDH17 (green march) has been 9857.5 to 9805. Given next week’s H-H testimony and the possibility of Greek negotiations failing, I would say that 23-24 bps for the green straddle is a bit on the cheap side.
–March treasury options (and all the teenies that were bought for cab7) expire today. Tens appear to want to peg the 127.5 strike.
