I got better
April 27, 2023
–Once again new low in FRC, down another 30% at 5.69, as a newsflash stated FRC faces potential curb on Fed borrowing. Interesting tweet from @Convertbond cites LNC (Lincoln Nat’l) as something to have on the radar: CDS new highs; 15% of mkt cap in debt matures this year. Another comment in the thread notes that the big insurers are heavily exposed in CRE. But….look at META! “I got better.” AMZN today.
–Implied vol down in rates, but there continues to be safe haven type trades, for example another 10k bought SFRZ3 9700c 22.5 paid vs 9566.0. (settle 24 vs 9573.5). Ten year yield +3 bps to 3.428%. Red SOFR contracts down avg -5.5 bps.
–Open interest in SOFR options is gigantic relative to futures (but spread across many strikes). Peak open interest in SFRZ3 calls is the 9750 strike with >400k. The bulk of OI is in December options with 4.164m calls and 4.115m puts. All futures OI totals 9.591m. There is simply an enormous amount of time value in options over the balance of this year. For example, SFRZ3 9750c have about $176 million in value. [daily bulletin links attached below]
–5 year auction went well at 3.50% (3.507 just prior to auction). Today includes the 7 year auction. Data: Jobless Claims 248k. GDP Q1 2.0%.
–PCE prices are out on Friday with yoy expected 4.1% from 5.0 last, and Core 4.6 from 4.6 last.
https://www.cmegroup.com/daily_bulletin/current/Section51_STIR_Call_Options.pdf
https://www.cmegroup.com/daily_bulletin/current/Section52_STIR_Put_Options.pdf
