March 14. Pre-FOMC adjustments

–Yields edged higher Monday on light volume, as pre-FOMC adjustments occurred.  The ten year rose 2.6 bps to 260.6.  Open interest was mostly lower in treasuries, though there was a large buyer (100k) TYJ 122p for 9 to 11.  Settled 11 ref 122-255, 24 delta, expires one week from Friday, a bit over 10 bps out of the money.  While eurodollar straddles were down by 0.5 to 1.0, treasury vol remained steady.

–News today includes PPI expected +0.1 with Core +0.2.  NFIB small business optimism as well, though the last 2 readings were extremely strong in the wake of the election and thoughts of reduced regulation and taxes; a pullback would appear to be in order.  July Fed Funds settled 9896.5, projecting about 50/50 odds for another move in June after tomorrow’s hike.   There was a good size buyer of EDZ7 9812/9800p 1×2 for 0.5 (looks new).  EDZ7 settled 9835.5; this trade appears to be pinpointing a 4th hike for the year.  Probably reasonable, but I prefer open ended protection by just buying EDZ7 9800p for 1.75.

–Interesting story on Reuters (well, in the state of Illinois anyway) that the Illinois state comptroller has suspended paying $27 million for the governor’s computer technology initiative.  Kicking the can down the road?  It wasn’t too many years ago that I went to City hall to file an appeal and they handed me four forms with CARBON PAPER.  “Press hard, so we can read the last sheet, and so it won’t smear when we file it.”  The article notes that the unpaid backlog of bills is now $12.3 billion, and has tripled in 21 months.  It also wasn’t that long ago that the state issued bonds to wipe out what was then about a $7 billion backlog. Are bonds backed by Illinois taxpayers for a dysfunctional gov’t really assets?

http://www.reuters.com/article/us-illinois-budget-idUSKBN16L030

www.reuters.com
Illinois’ state comptroller has suspended $27 million in payments for a computer technology initiative launched by Republican Governor Bruce Rauner, according to a letter seen by Reuters, opening a new front in an ongoing feud over finances.
Posted on March 14, 2017 at 5:27 am by alexmanzara · Permalink
In: Eurodollar Options

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