June 21. Yellen today

–Yellen gives semi-annual testimony today.  Reuters notes that uncertainty is now the Fed’s new mantra, “At Wednesday’s quarterly [FOMC] news conference Fed officials’ doubts were in plain view, with Yellen using the term “uncertain” or its variations 13 times, more than twice as often as in March.”  It’s unlikely that Yellen will provide more clarity, though she will likely face critical questions about the Fed’s forecasting ability, particularly in the wake of Bullard’s speech, where he swore off forecasts.
–Yields rose as Brexit fears eased, with tens up 5.2 bps to 166.8.  The curve edged slightly steeper; implied volatility fell.  For example, on Friday, Blue July 9875 straddle settled 23.5, while yesterday the 9862 straddle settled 21.0.  In the ten year, there is still a consistent buyer of covered calls, in the past few days it’s been the TYU 135c.  There is now open interest of over 50k in TYU 134 and 135 calls, and 74k in TYU 132c (also a strike that had been accumulated).  It will be interesting to see if this buyer attempts to exit longs if the UK votes to stay.  There will almost certainly be a vol implosion on a stay vote.
–In Fed Funds, the odds of a hike in September rose, as the Aug/Oct calendar spread rose from just 3.5 on Friday to 6.0 yesterday.  100% certainty of a hike would put the spread at 25.  However, the July/August spread, which captures the idea of a hike at the July 27 FOMC meeting, settled at just 2.0.
–In spite of many risk measures pulling back yesterday, $/yen fell below 104 during the day.  It’s currently back to 104.45, but clearly the policies of Japan are under increasing strain.  Nikkei is down nearly 20% on the year. 

Posted on June 21, 2016 at 5:19 am by alexmanzara · Permalink
In: Eurodollar Options

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