Jan 16, 2019. A Simple Lapse

–If you told me early Tuesday morning prior to the open that there would be over 200k atm treasury call spreads sold and that stocks would push to new highs for January, I would not have guessed that five, ten and bond futures would close unchanged on the day.  But that, of course, is exactly what happened.  In FVG, the 114/115cs was sold 50k and the 114.5/115.5cs sold 60k, the former appearing new and the latter a liquidation from late December; FVH9 closed 114-170, up 0.5.  In TYG, the 121.5/123.5cs sold at 31, 25k, 122/123cs sold at 15, 60k, and 122/123.5cs sold at 19, 25k.  TYH settled 121-29, unch’d.  Feb options expire one week from Friday.  Implied vol in treasuries is at new recent lows.

–This morning treasury futures ARE weaker, with the bond down half a point at 144-30, a new low for this early year.  As the chart below shows, 5/30 treasury spread has been grinding higher for the past six months, ending yesterday at 54.5 bps.  According to my marks, the high last year was 62.3 on 9-February, just under one year ago.  As Fed officials underscore the idea that rate hikes have been suspended (Esther George yesterday), support for the long end diminishes.  A large liquidity injection by the PBOC might also be considered as a nudge to the steepener, if only at the [wide] margin.  It feels like global central banks, in their “risk management” capacity, all of a sudden would rather err on the side of ample liquidity. 

–Beige book today in advance of the Jan 29/30 FOMC.  The next meeting is March 20, just after the IMM date.  Theresa May faces a no confidence vote.  Retail sales…anyone’s guess.  At the top of the Census Bureau website it says NOTICE: Due to a lapse in federal funding, this website is not being updated.  Do nagging concerns about credit worthiness start to creep in?  Nah.

Posted on January 16, 2019 at 5:10 am by alexmanzara · Permalink
In: Eurodollar Options

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