Gov’t shutdown closes euro$ futures

–Quiet Monday featured slightly higher yields.  Greens (3rd year) were the weakest part of the euro$ curve, settling -2, while the ten year rose 1 bp to 270.6.  5/30 remains firm at 53.4 bps, up 2.3 on the day, poised to make new highs.  While yields edged higher, option activity mostly favored the upside with buying of TYH 122.5 calls and 122.5/124 call spread vs 120.5p.  Overall activity was light.  It’s as if the gov’t shutdown has spilled into the interest rate market.   

–One trade of note in euro$’s was a buyer of 0EG 9725/9712 put spread vs the same in 2EG.  The Feb midcurve on EDH0 settled 2.50 and 0.75 so 1.75 and the 2EG settled 1.25 and 0.50 or 0.75.  So the spread to spread settled 1.0, where it traded.  Futures settles were 9739 in EDH0 and 9750.5 in EDH1 so the futures spread settled -11.5.  As long as the futures spread remains inverted, any sell-off could cause the near put spread to go in the money, while the back remains out.  Similar idea without the spread risk is 0EG 9725./9712 put 1×2 which was offered at 1.0 late.  This type of trade has become more popular, buying nearer puts and selling deferred, with the idea that calendar spreads remain inverted even if yield go up. 

–Long green euro$ 9750 straddle strip settled at 371.25 on Friday on a flurry of large late buys of 9750 calls in EDH1 and EDM1.  Yesterday all straddles came right back down to Thursday’s levels and the strip traded 362, settling at 363.  

–May is apparently on the verge of a humiliating Brexit vote, but GBP is down only slightly and only barely changed vs euro as Germany’s growth at 1.8% in 2018 is the weakest in five years. 

Posted on January 15, 2019 at 5:15 am by alexmanzara · Permalink
In: Eurodollar Options

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