March 25. Curve being steamrolled

Curve trades are dominant theme.  Once again the green euro$ pack is the weakest part, closing -4.25.  New high in red/green pack spread to 112, (+1.25 on the day).  New low in red/gold to just under 254 as gold pack edged higher by 0.75 bp.  S&P cut Brazil to just above junk with negative outlook.  Weakness in greens is predicated on a “Fed normalization” path.  The back end is compressing the inflation premium.  Will perception of tighter monetary policy withstand trembles out of EM?
–Big buyer yesterday of TYM 119p yesterday vs 121p on ratio.  For example early block +60k 119p vs -15k 121p for 4 debit.  Open interest fell in those options by nearly exact amount of block trade: 119p -58k and 121p -14k. There was also a new seller of about 10k USM 132p from 110 down to 103.  Settled 103 vs 13303.  Total premium credit from that trade can pay for a LOT of little puts further up the curve…  Not that the trades are related, but there was a good buyer of Green April 9800p for 3.0 late.  Could do 14 to 1 that way flat premium.  If the premium works out even there’s no risk, right?
[that’s an inside joke, for any regulatory body that thinks I am making a recommendation]
–Using w/i 5yr yield, 5/30 is right at 190.  But using the current five year 5/30 plunged to new low of 184.  Note as well that the 2 yr being auction today is nearly 1/2% (closed 48.5/48.0).
–(Reuters) “Xi tells Obama to adopt ‘fair’ attitude on China’s maritime disputes.”  In other words, we saw your impotence on display in Ukraine, and we intend to pay our ‘fair share’, oops no, make that “take” our fair share in Asian seas.
–Draghi speech in Paris today, “A consistent strategy for a sustained recovery”.  I think it’s at 11:00 NY time.

Posted on March 25, 2014 at 5:21 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply