June 19. Dudley today…got some splaining to do…

–On Friday, the peak one-year eurodollar calendar spread settled at a new low for the calendar year of just 28.5 bps (Dec’17/Dec’18).  As a point of reference, the peak one-year had gotten to 60-65 bps in December after the election surge.  Pre-election the one-year spreads were more like 15-18 bps.  Pre-election SPX was around 2150 to 2200, and is now around 250 higher.

–Dudley speaks today at 8:00, as most market measures of forward inflation continue to fall.  Ten year treasury to tip spread ended the week at 168.5, about 30 bps below the start of the year.  The June ED contract expires today; using Sept contracts for the new packs, I marked reds/golds (starting EDU8 and EDU21) at just 55.5 bps.  Now using October FF as an indicator for tightening odds at the September meeting; FFV7 settled 9880.5 or around 16%.  If the Fed chose to ignore weakening inflation signals as transitory and is now focused instead on trying to stem the rise of equity prices, it’s not working.

–EDM’20 will become the last green contract tomorrow. It settled at 98.00 and the 98.00 straddle (long-dated) settled at 87 bps.  It had been the case in recent history that the last green comes onto the board with a straddle price of 105-110 bps.  Like everything else at this point, the last long green straddle is forecasting a summer of little movement on the rate front.

Posted on June 19, 2017 at 5:25 am by alexmanzara · Permalink
In: Eurodollar Options

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