June 22. The longest day (for long option holders in US rate futures)

–Risk assets look shaky as deflationary impulses continue.  Crude oil has been the leader to the downside falling another 325 to just about $78/bbl, a remarkable plunge of over 25% since the beginning of May!  Gold fell $50, and silver is fast on the heels of oil, threatening important lows from the end of May, as is copper, which is down about 14% since May 1.  SPU was down 32, but equities have held in relatively well considering the carnage in other markets.  
–Adding to the bad news that streams out of the european crisis, Moody’s downgraded banks, and US data keeps underperforming, with Job Claims nearing 400k again (387k yesterday) and Philly Fed -16.6 vs expected 0.  
–Net change in US interest rates was small, though the curve was flatter with red/gold pack spread -5.5 bps. 2/10 treasury spread down 2 at 131.
–The real action was an implosion of implied vol in US rates. Last week TYU at the money straddle was 2’50, yesterday the 133.5 straddle settled 2’17.  Eurodollar straddles were hammered as market makers dropped their bids following inaction by the FOMC. With three months to go, EDU2 9950 straddle fell 1.5 bps to 9.5.  Red midcurve straddles were down 1.5 to 2 bps on long liquidation, for example EOH 9937 traded 27.5 the past few days, but settled 25.5 yesterday. Looks like the CBOE decision to start a volatility contract on interest rates (10 year swap) killed it.
–July treasury options expire today.

Posted on June 22, 2012 at 10:00 am by alexmanzara · Permalink
In: Eurodollar Options

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