Jan 9. Jobs data sparks slight increase in odds of a March hike

–Yields backed up on the employment report with tens rising 5 bps to 241.6.  Hourly earnings were up 0.4, bring the yoy change to 2.9.  Today brings the Fed’s Labor Market Conditions index and Consumer Credit.

–There is continued buying of Feb TY puts in good size (expiry on Jan 27, TYG 123.5, 123 and 122 puts).  Friday also saw large buying of both April and May 9862/9900 risk reversals in various forms, buying of 9862 puts and selling calls.  These trades pretty much require a March hike in order to pan out.  There wasn’t much open interest in May options before Friday, but the 9900c, 9862p and 9850p all gained 90k.  Settles (May) were 0.5 in the call, 0.5 in the 9850p and 2.5 in the 9862p ref 9877 in EDM7.  April Fed Funds settled at 9928, down 1 on the day, suggesting odds a bit better than one in four that the Fed moves in March (FFF7 settled 9935.25).

–Red/gold eurodollar pack spread closed at 75, near the low of the recent range.  Back ED curve has been flattening since mid-December when red/gold neared 100 bps.  With talk about the possibility of 3 hikes in the coming YEAR, 75 seems a bit tight for a THREE-YR spread, especially given increased inflationary indicators and a Fed that has used the word “gradual” so consistently that it’s hard to imagine the Fed getting out in front of an inflation problem (should it develop).

–GBP near new lows today on May’s comments which suggested the UK may lose access to Europe’s single market.  There is also increased tension with China as Taiwan’s president met with US lawmakers.  On the economic front, China seems to be faced with the options of selling reserves, or depreciating the ccy, or allowing punishing short term funding rates, none of which are particularly positive for global trade and pricing.

Posted on January 9, 2017 at 5:23 am by alexmanzara · Permalink
In: Eurodollar Options

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