July 15. Yellen semi-annual testimony today, risk of a less dovish stance
–In spite of it being a low volume day in ten year futures, there were sev’l interesting aspects of Monday’s trade. There was a buyer of at least 80k Short (red) August 9912p for 2.0. (EDU5 9924.0s). Additionally, there was buying of EDM5 9925 and EDU5 9900 straddle strip up to 49.0. On Friday the settlements were 26.0 and 41.0 respectively, so the strip had settled 47.0. Yesterday 27.0 and 42.0; all long dated straddles from EDM5 forward gained 1 to 1.5 bps. These trades indicate concern that perhaps Yellen will hint at tightening in her testimony today. However, the Short Sept 9925 straddle actually closed down 0.5 bp to 15.5. Might be worth buying short midcurves and selling long dated straddles at this point. Note that the straddle buying wasn’t particularly large; vol sellers have become scarcer.
–Another big trade Monday concerns precious metals, which came under heavy selling pressure from the open. Gold was down over $30, erasing the grinding gain from the past three weeks. Same with silver, which dropped $0.50. Interest rate markets are sensitive to the timing of potential Fed hikes and inflationary impulses, but the CRB index has plunged over 5% since the end of June as crude oil has shrugged off geopolitical problems in energy producing countries. Grains had already been under pressure due to good growing conditions. Cattle has shown signs of a top. And now precious metals crushed…
–From FT: JGB rally bodes ill for a resurgent Japan… Bond market activity suggests growth strategy falling short. Ten year JGB at just 53 bps.
–Retail Sales expected +0.6.
