Jan 13. Treasury vol crushed Friday as yield levels retreat due to weak employment report

–NFP of only 74k caused a short covering rally in interest rate futures.  New recent lows set in 2/10 treasury spread at 249 (it ended the year at 262) and in red/gold eurodollar pack spread at 284.5 (ended the year at 306).  Ten year yield fell over 9 bps to 286, and blue eurodollar pack (strongest) gained 17.  Red/green pack spread fell over 6 bps to 102; given that the market has targeted this time period for the onset of Fed tightening, it seems low.
–Implied vol in treasuries was crushed, with tens and bonds closing at levels not seen since last May when the market was just beginning to awaken to the idea of tightening/tapering. More on that below.
–In eurodollars there was selling of green and red midcurve puts vs blues as positions were exited, but open interest changes weren’t overly large.  While I’ve noted the compression between green and blue midcurve straddles, it’s worth noting that Five year vol has also declined significantly relative to green midcurves.
–Not much news today.  Retail Sales on Tuesday expected 0.0, +0.4 les autos.

Posted on January 13, 2014 at 5:22 am by alexmanzara · Permalink
In: Eurodollar Options

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