Jan 30, 2018. Stocks start to notice bonds

–The US day started with rate futures at new lows across the board.  Ten year yield hit 272.5 but came back to close 269.2.  Futures contracts still closed at new lows, however there was quite a bit of put selling on the day, for example, before the floor open, a sale of 24k TYH 120.5 at 15 covered 121-20.  To give an indication of the vol clubbing, those puts settled at 9, unchanged on the day, even as the contract fell 8/32’s to 121-260. Another example:  USH 148 straddle was 2’57 early vs 147-27, but closed 2’39 mid-market vs 148-04.  In euro$’s the premium bid was more stubborn, with green midcurve straddles again higher on the day by 1-1.5 bps.  Futures calendar spreads remained pinned to the highs, with some posting new highs, for example EDM8/EDM9 +0.5 to 44.5.  Large buying of EDU19/EDU20 also sparked a new high in that spread, to 13 bps.

–Treasury released borrowing estimates…expects to borrow $441 billion in Jan-March quarter, the largest in 8 years.  That used to be the entire ANNUAL deficit.  In skimming the news this morning virtually every financial site mentions the bond sell off taking the wind out of stocks…but no one alludes to Dalio’s point that present values discounted by increased rates means lower asset prices…as a friend used to say, “that dog won’t hunt.”

–As mentioned yesterday, the US savings rate decline was on display with yesterday’s data…12 year low at 2.4%.  I have also attached the Atlanta Fed wage tracker chart, which appears to have an ominous decline going into the end of last year. (Hit a peak in late 2016 and has been down ever since). Some stories are suggesting that wage growth is now more important than NFP in Friday’s employment report; not sure if the latest data will capture bonuses and raises announced by various companies in response to the tax bill.  This report is less important than usual.

–State of the Union tonight.

Posted on January 30, 2018 at 5:24 am by alexmanzara · Permalink
In: Eurodollar Options

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