June 10. Yield reflation

–Tens again closed lower on the day, at a new high of 241.7, up 3.5 on the day, and pushed as high as 243 shortly after the close of the floor.  This morning the sell off has continued as bunds traded above 1% and US tens (247 as of this writing) are flirting with the 61.8 retracement of the 2014 high 303 to 2015 low of 164, which is 250.  Above that there’s resistance at 260-262, the high from mid-September.  Treasury auctions tens today and thirties Thursday.  Stocks were relatively quiet, though the Dow Jones Composite closed at a new low for the year.

–Not much in the way of trade in interest rate options.  There was a large new buyer of August 2 yr 109 puts for 7.5 to 8.5 which equates to around 6 bps of premium.  At a close of 109-05.25 in TUU5 the puts are about 7.4 bps out of the money.  Two year cash treasuries went out at 70.9, so the strike equates to just above 78 bps; breakeven would be around 84 bps. There was a late buyer of 7k Blue July 9750 straddle for 26.5 (settlement price) …note that June midcurves expire Friday and a huge amount of open interest that was built up in expectation of a June rate increase will simply vanish.

–For whatever reason, bonds are in a bear market.  Yesterday’s JOLTS data of  5.376 open jobs continues to show labor market improvement, and the Atlanta Fed’s Wage Growth Measure (released Friday) was getting some play yesterday; it showed an increase of 3.3 yoy in April.

–Crude oil surged yesterday after an unexpected inventory draw down.  Now trading 61.50, the contract is up around $3.50 since Monday’s close

Posted on June 10, 2015 at 5:00 am by alexmanzara · Permalink
In: Eurodollar Options

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