Foie Gras

August 26, 2020

–There seems to be a bearish sentiment shift occurring in bonds as Powell looms on Thursday.  Yesterday tens rose 3.5 bps to 68 and 30s up 3.8 to 1.386%.  New Home sales and Richmond Fed were strong while Consumer Confidence plunged to 84.8, the lowest since 2014.  Ten year inflation-indexed breakeven edged to a new recent high at 170.6 bps.  Curve was steeper with 2/10 up 3.3 bps to 52.6.  Today treasury auctions $51 billion in fives and $22 b in 2-yr FRNs, and tomorrow $47b in sevens.  Like a goose being force fed for foie gras.

–In euro$s, the sentiment change was mainly expressed through several large new put buys in blue and gold midcurves.  Buyer of 22k 3EM1 9950/9912ps 11.5 to 12.0; settled 11.0 vs 9942.0 in EDM’24.  Also, buyer of >15k 3EX0 9950/9925/9900 put fly for 3.5, settled 3.25 vs 9959.5 in EDZ’23.  These settle on 13-November, after the (contested) Nov 3 election date.  On June 5, strong employment data caused a low in the EDZ3 contract of 9926, which this fly targets.  I suppose it’s worth mention that there is an FOMC meeting on Nov 5 and Employment report Nov 6, all just before Nov midcurves expire.  In smaller size of 3k, a buyer of 4EX0 9937/9912/9887p fly for 4.5; settled 4.0 vs 9941.0.  The June 5 low in this contract was 9901.5, so I would prefer adjusting strikes down by an eighth and paying 3 for the 9925/9900/9875.  

–On the long end, Dec bond vol (USZ) seems to be firming every day, now 10.4. USZ0 177 straddle settled 7’10.  Still low in historical context but a new high for August.

Posted on August 26, 2020 at 5:25 am by alexmanzara · Permalink
In: Eurodollar Options

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