March 26. China and the US patching it up

–Friday’s session was dominated by the slide in stocks, with SPX -2.1% and Nasdaq -2.4%.  Yields edged modestly lower by the futures close and then posted further gains into the end  of the electronic session.  However, we’re seeing a nice bounce this morning as news sources report that China and the US are working to resolve trade differences (as China opens its petro-yuan futures, threatening to dominate yet another market).   Both HYG and JNK made new low closes for the year, though they are well above the low associated with the energy patch carnage in late ’15, early ’16.

–Today’s news includes the Chgo Fed National Activity Index, which was 0.12 last, with the report noting “little change to economic growth in January”.   Dudley speaks on regulatory issues (is that guy ever going to actually leave?) and the treasury auctions 2 year notes.  SF Fed’s Williams reportedly at the top of the list to replace Dudley.

–On the dollar curve, EDM18 calendar spreads made new lows, with EDM18/EDM19 falling 3 bps to just 39.5.  EDM8/EDU8 closed at just 7 bps, even though there’s a hike possibility.  This spread reflects near term libor pressure, as July to October Fed Funds settled higher at 15 bps (9812.5 and 9797.5), roughly indicating 60% odds of a hike at the September meeting.  Back month dollar spreads remain extremely flat, with green/blue and blue/gold pack spreads both under 4 bps.

–Beware of reduced liquidity going into the holiday shortened week.

Posted on March 26, 2018 at 5:20 am by alexmanzara · Permalink
In: Eurodollar Options

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