March 16. Moving to neutral

–The Fed hiked and maintained the forecast of 3 hikes in 2017.  April Fed Funds settled 9911 and July at 9898.5, exactly 12.5 lower, so essentially 50/50 for a June hike.  Fed’s end of 2017 FF projection is unch’d at 141 or 9859, but FFF18 settled 9871.5, +4.5 on the day, a rate of 128.5.  Once again, the market won’t quite take the Fed at its word (understandably so as some data indicate softness, for example Atl Fed GDPNow down to just 0.9 for Q1).  Shorts looking for a more confident outlook by the Fed were squeezed out.  USD fell, gold is up $24 this morning, and near euro$ calendar spreads declined, with June/June, Sept/Sept and Dec/Dec clustered just above 1/2% at 53.5, 51.5, and 51.5.  Late in the day we traded EDM7/EDZ7 at 26.0; hard to see the risk as it barely prices one hike in that six month period.   Implied vol was crushed, with TYM 123.5 straddle at 2’05, 4.7 vol.  There was an article on BBG yesterday highlighting Runestone capital, which trades volatility with just a one-day horizon.  The article implies it’s mostly equity vol, but treasury vol was being sold aggressively in front of the FOMC.  Quick hit vol sellers just prior to known events seems to be a strategy of increased importance recently.

–While Brainard had recently noted that risks were to the upside, Yellen said that data hadn’t strengthened appreciably.  The message was steady, slow growth.  Ten year yield slipped back below 2.5%, down nearly 10 bps on the day.  In terms of other central banks, the WSJ has these headlines on its home website:  ‘ECB Walks fine line as it prepares to signal possible end to stimulus’ and ‘BoJ sticks with policy’.  In China, repo rates were raised by 10 bps, which may or may not reflect an official policy change.

–Today’s news includes Housing Starts, Job Claims, JOLTS and Philly Fed, with the latter expected to pull back to 30.0 from 43.3 last.

Posted on March 16, 2017 at 5:26 am by alexmanzara · Permalink
In: Eurodollar Options

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