July 2. Employment data today; risk skewed to higher rates at the long end of the curve

–A substantial amount of the Greek referendum and bank holiday rally in treasuries had evaporated by late Wednesday.  The ten year yield was up 8 bps to 241.6 yesterday, right where it was last Thursday (the high Friday was just under 249).  Implied vol pulled back as interest rate futures sold off.    The market now believes that some sort of deal will be accomplished to keep Greece in the euro, though it’s likely to be a messy process.

–An MNI article by Steve Beckner got some play yesterday, in which St Louis Fed’s Bullard said a flight to quality due to Greece could push US rates lower… “so I see the US as being the likely beneficiary of the situation in Greece.  It’s not that I take joy in that, but that is the way the global macroeconomy tends to work.  And so to the extent we have interest rates lower than they would otherwise be, that would be good for the US economy.”  Huh??

–ADP was 237k and NFP today expected 233k with Avg Hourly Earnings expected +0.2.  A strong number should absolutely annihilate the long end of the US curve, while this week’s highs should cap even a weak release.  Targets in tens are around the low in TYU from June 11, 124-145.  That should equate to around 255 yield.  In the 30 yr bond the 0.618 retracement from the 2014 high yield to 2015 low is 330, also around 10 bps higher than the cash yield floor close of 319.5.  USU should target the area of 146-16 around the 330 yield.

–Interesting trade late yesterday was purchase of a 100 call strip (the zero percent strike), the first 16 quarterlies.  A small amount traded at 12, then 13.5, 15 and primarily at 18, in total 1900 contracts of each call. This strip goes out 4 years, the last call being June of 2019.   Risk cap trade…

Posted on July 2, 2015 at 5:12 am by alexmanzara · Permalink
In: Eurodollar Options

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