March 17. Green midcurves get hammered for St Pat’s Day

–Vol continues to be pounded in the aftermath of the Fed.  Libor/ois continues to compress.  Open interest in EDM7 puts declined by 108k with a buyer of 40k 9875/9862/9850p flies for 4.  9862p settled at 2.75 ref 9868 and still have 838k open.

–The eurodollar strip was nearly unchanged, though the ten year yield rose 2.5 to 252.  In futures, a reflection of declining swap spreads is that TUM7 (June 2yr) was down 1/32 which is about 1.4 bps and the 2yr eurodollar bundle (or strip) was up 1.25 bps.  This is also apparent in back Fed Fund contracts vs euro$’s, for example, FFZ7 and FFF8 were -2.0 and -1.5 respectively, while EDZ7  closed unchanged.  Long vol positions continue to be unwound after the Fed, or said another way, the bid for premium has substantially pulled back.  For example, in green midcurves, 2EJ 9775^ closed at 16.0 from 17.0 on Wednesday, 2EM 30.0, from 31.5, 2EU 9762^ 43.5 from 45.5 and 2EZ 55.5 from 57.5. (Green pack was +0.75).  TYM 123.5^ from 2’05 to 2’00.

–However, there was still buying of TYK puts yesterday.  TYK 122.5 and 122p settled 18 and 12 respectively with 26 and 18 deltas, open interest up 15k and 7.3k.  The large buys of TYJ 122p pre-FOMC from 9 to 11/64’s didn’t pan out, however, 2’s were paid yesterday in 40k; one week to go for April expiry.

–One year eurodollar spreads Sept17/Sept18 and Dec7/Dec8 both closed -1 at 50.5, solidly in the ‘two hikes per year’ camp.

–Today’s news includes Industrial Production expected+0.2 and Leading Indicators +0.4.  Trump has resurrected the old ‘guns vs butter’ economics debate.  Republicans are balking, an indication that upside economic risks associated with aggressive fiscal stimulus might be tamped down.

Posted on March 17, 2017 at 5:32 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply