Jan 22. Quick notes from Friday

–Ten year yield pushed through old high, closing 2.639, up 3 on the day and 9 on the week.  Implied vol firming on the move to lower prices, providing confirmation for bearish price action.  The bond yield rose 2.5 on Friday to 291.3.  (Not even 300 bps over a year, when stocks have already returned >5% this month).  In eurodollars, all near one-year calendars made new highs.  Notable buy was a clip of 60k EDH19/EDH20 that went through at 19.5, sparking a squeeze into the close with a settle at 21.5.  Peak one-yr spread is still EDH8/EDH9 which settled 54.  Perhaps this spread is still undervalued given recent Dudley comments that near term economic risks are to the upside, and Williams comments that the pace of hikes could be a little bit faster.  Further back, red to green pack spread rose 2.625 on Friday, but the level is still only 14.5 bps.

–A hike in March is substantially priced.  The June meeting is isolated by the May/July FF spread, which settled 16.5, indicating 2 in 3 chance of a hike then.

–Dollar index is lower this morning, with little on the horizon to suggest a change in trend.  Gov’t shutdown is probably net negative for the dollar, though there’s probably little reason to hope for a bounce when the gov’t reopens

–Feb treasury options expire Friday.  Late scramble to buy premium on Friday after the floor closed.  For example, 3EH 9737^ settled 20, but was immediately 21 bid late without much offered at 21.5.

Posted on January 22, 2018 at 5:13 am by alexmanzara · Permalink
In: Eurodollar Options

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