Feb 5. Puerto Rico downgraded by S&P. US jobs downgraded by CBO.
–Implied vol in treasuries continues to post new highs as there is a continuous buyer of March puts in TY. Yesterday it was the 125.5 strike, which added 47k in open interest. Monday it was the 125 strike, bought in size of 110k. I marked TYH 126 straddle at 1’25 or 6.4 vol. However, there was straddle selling in May, the 124.5^ sold 5k from 2’34 to 2’33. In eurodollars there was notable midcurve put buying, though mostly exits. (0EJ 9900/9875ps bot for 1, OI -60k. 2EH 9825/9812ps bot for 0.5. 0EM 9912p 4 paid for 40k, OI fell 35k). EM currencies bounced as did US stocks, but a late downgrade of Puerto Rico to Puerto Pobre by S&P reminded the market of lingering fragility globally. $/yen moving back toward 101 (now 101.20) as risk off mentality is associated with a rebound in yen.
–Today’s news includes ADP expected +178k and ISM Services, 53.0 vs 53.9. CBO estimates the equivalent of 2 million jobs will be lost due to Obamacare. As Nancy Pelosi eloquently reminded us back in September, this will allow Americans to “pursue your happiness … follow your passion.”
–Crude oil strengthening in sympathy with Nat Gas. CLH now near $98 bbl after having been as low as $92 in early Jan. Lower energy bills were supposed to give a boost to the American consumer who is now going to have to pursue happiness by pedaling a little faster.
