March 27. Risk reduction Friday

–Ten year yield jumped 9.4 bps to 201.0.  Curve steepened with 2/10 up 7 to 139.2.  Red/gold pack spread also up just over 7 bps to 113.37 with reds -4.0 and golds -11.125.  On relatively light volume the weakness in the back end of the curve was somewhat surprising.  There was decent early selling in reds, for example a seller of 50k EDU6…appears to be new position with open interest up 38k.  Seven year auction was sloppy.  Perhaps some incipient inflation fears as well, as oil was up over $2.  However, the global story still seems to be one of subdued prices.  For example, Japan’s Core Inflation again printed zero.  And there is a story on Bloomberg saying that despite S Korea’s rate cut, inflation expectations and bond yields continue to move lower.

–April treasury options expire today with TYM pegging the 128.5 strike this morning.  Given the new hostilities in Yemen, lack of improvement with Russian relations, and the clock ticking for dire financial conditions in both Greece and Ukraine, I would think that weekend risk might cause a “risk-off” mentality for this afternoon; may be worth taking a look at expiring otm calls.  Stocks have already had a taste of risk reduction going into quarter end which may not have run its course.
–News this morning is final revision of Q4 GDP expected 2.4.  Yellen speaks late this afternoon, another factor that could keep April options in play.
Posted on March 27, 2015 at 5:09 am by alexmanzara · Permalink
In: Eurodollar Options

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