Low vol

July 16, 2020

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–Once again, little movement in rates with tens up 1.3 to 62.7 bps.  Euro$’s down 0.5 to 1.5 out to five years.  Attached to this note is Five Year treasury vol.  I marked FVU0 atm straddle at just 1.45 vol yesterday.  That’s around the historically low level in late 2012, after Draghi’s “whatever it takes” line, but before Bernanke’s May 2013 taper tantrum.  Unfortunately, it doesn’t seem like any tantrums are around the corner currently, except at the social level.  On the other hand, it’s crazy to sell vol here.  In the other direction was a new block buyer of 35k 2EZ 9950p for 4.5 covered 9967.5, 5d ref 9972.5 (4.25 synthetic).  This put settled 3.75 vs 9974.0 in EDZ’22.   

–Today’s news includes Retail Sales expected +5%, Philly Fed which had snapped back to 27.5 on its last release, which was higher than all readings in 2019, but expected to pull back to 20.  Jobless Claims 1.250 million.           

–China reported GDP +3.2% for Q2, however the Shanghai Comp fell 4.5% on profit taking after an explosive rally in the beginning of July.  Looks sort of like TSLA, which would be at 1475 on a 4.5% pull back.  In any case, US stock futures are also seeing early weakness.   

–Wall St Journal headline notes ‘Surging Copper signals optimism on global growth’.  From the March low to this month’s high (~212 to 294 in HGU0) copper has jumped nearly 40%.  Lumber has doubled off the March low.  Certainly it’s a bright spot, and infrastructure projects are sure to be instituted, but it’s a long way from cheering for organic growth.  Interesting ZH article ‘Father of credit risk modeling’ has ominous warning over “insolvent” companies piling up debt.  There’s not a lot of new info, as articles about zombie firms saved by central banks have been quite frequent.  However, this piece does mention that a record $2.1 trillion bonds have been issued by global firms this year, about half from US companies.  A lot depends on the Fed staying ultra-loose, which of course, several officials have promised in the past few days.   A lot also depends on a new fiscal package. 

https://www.zerohedge.com/markets/father-credit-risk-modeling-has-ominous-warning-over-insolvent-companies-piling-debt

Posted on July 16, 2020 at 5:59 am by alexmanzara · Permalink
In: Eurodollar Options

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