Jan 15. Peak open interest in Dec’15 eurodollar indicates timing bets for onset of Fed tightening

–The squeeze higher in treausuries following Friday’s employment data was arrested yesterday by somewhat better than expected Retail Sales.  Tens rose 4 bps in yield to nearly 287.  Green eurodollar pack was once again weakest on the curve closing -8.375 bps.  Stocks blithely reversed Monday’s losses and the VIX, which was sparked higher Monday, quietly slithered back to 12.3, near the low for all of last year.
–The dollar is stronger this morning with JPY 104.30 and CAD making new lows 109.65.
–Today’s news includes PPI expected +0.4 with Core +0.1.  Empire State 3.0 from 1.0.  Beige Book this afternoon in preparation for the FOMC in two weeks.
–Some modest bearish option positions taken yesterday.  TYH 123/122.5/122 put fly bought 10k for 2.  Green March 9850 puts were sold on exit and replaced with Green June 9775 puts (-10k/+15k).  There was heavy trade yesterday in EDZ4/EDZ5 spread around 67/67.5.  Settled 69.5, up 4.5 on the day.  Interestingly, EDZ5 open interest rose by 12.6k, and has the most open interest of any eurodollar contract at 1.163 million, reflecting the idea that Fed tightening will commence around that period of time.  In a related trade, there was a seller of Green/Blue March straddle spread, 9875^ to 9762^ for 4.5, selling blue over.  I say it’s related because the greens continue to be viewed as the fulcrum period for tightening, and therefore the most volatile area of the curve.

Posted on January 15, 2014 at 5:38 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply