Jan 9. We … sit around a lot

–Markets continue to rebound from the year-end plunge as the Fed softened and a deal with China draws closer.  Oil back above $50/bbl.  While one-year euro$ spreads remain inverted, calendar spreads over the first year of the Fed funds curve are flat to positive.  Against a Fed Effective of 2.40% which is exactly where the Jan’19 contract sits at 9760, April FF settled 9758.5 (leaning ever so slightly towards a March hike) and Jan’20 FF settled 9757.5.  Today the Fed releases minutes from the last meeting.

–In the two months starting November, EDH21 had a range (rally) of 100 bps.  With a little over two months to go, March midcurve atm straddles are under 25 bps, except for Green March (EDH21) with settled 26.0.  The market is settling back into a comfortable armchair sentiment where the biggest movement is a reach for the channel changer.

–In the early part of the session trade flows were mixed, though there was a notable buyer of EDU21 99.00/100.00 c spread for 9 to 9.5 (looking for a return to zero rates over next couple of years; settled 8.0).  Late in the day there were some large risk reversals in blues: 40k 3EM 9712/9775 vs 9742.5 the call was sold for 1 credit.  Same strikes in 3EU vs 41/41.5 20k sold at 1.0 (sold call).  Calls have been better bid, especially in the panic rally; these trades are a new fade of that move.  And if, for some reason, inflation expectations leap up, a bid for puts could easily develop in that part of the curve.

–As Softbank cut a planned $16 billion investment in WeWork to just $2 billion (as some of Softbank’s sponsors didn’t like the idea of throwing money at a cash-burner), the company changed its name to The We Company.  Apparently the connotation of “Work” was harsh and off-putting.  In the world of social media and public appearances, the loss of sponsorship quickly leads to a loss in ‘work’ and money.  Perhaps negative implications for valuations in general (and that includes corporate real estate).

Posted on January 9, 2019 at 5:16 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply