Feb 4. Sometimes a “wall of worry” is there for a reason, and not worth trying to climb
–Stocks were clobbered yesterday with SPX -2.3% (off nearly 6% from high) on huge mini-SP volume of 3 million. ISM was much weaker than expected, coming in at only 51.3. But you can blame it on the cold weather. Ditto for car sales. And no need to worry about EM woes, there are just some country-specific imbalances. And the Nikkei being down 4% today and 14% off highs is in no way a negative reflection on massive QE risks. Yellen will address all this and assuage our misguided fears as she testifies to the Fin Services committee one week from today.
–The big interest rate trade of the day was TYH 125 puts, hoovered up from before the floor ever opened and thru the day, creating a huge bid in implied vol. These puts traded over 150k. Open interest increased by 111k with total March put OI of 1.02m as compared to TYH which added 56k positions to total 2.38m. TYH 126^ was 1’16 at Friday’s close (5.4 vol) while yesterday the 126.5^ jumped to 1’23 or 6.1. I don’t know if these put buys were in conjunction with cash treasury buying, but the ten yr yield fell 8 bps to 2.582 as safety concerns prevailed. Treasury implied vol at new highs across the curve, unusual to be associated with a rally.
–All euro$ calendar spreads made new lows. Red/gold pack spread fell 5 to 269. 2/10 treasury spread is 228, 32 bps off the high of the year. Highest one year calendar is still EDZ5/6 but it’s now only 105.5, setting a new recent low, down 2.5 on the day.
–Today’s news includes Factory Orders expected -1.8%.
