March 3. Buying at the zero-bound

–Modest follow-through selling yesterday in treasuries yesterday as ISM was a bit better than expected at 49.5.  Five year rose 3 bps to 1.346, tens were up 1.2 to 1.846 and bonds declined 1.4 bp to 2.69, causing a new low in the 5/30 spread at 134.4.  Beige book was non-committal.

–Interesting feature of yesterday’s trade was buying in 100 calls, and there was even a small trade in the red pack 100.25 call strip. (All as SF Fed Williams poured cold water on the idea of negative rates in the US). The red pack 100 c strip settled 9.75, the largest volume was in EDH7 100c which traded 1.0 about 7k.  The red 100.25 c strip traded 5.5 300x, settled 3.75.  Green pack 100c strip traded 35 and settled there.  Also small buying in the long blue 100c strip for 56.0.  With euribor deeply negative it’s not surprising to see headlines like this in the FT: Life Insurers shaken by rock bottom rates.   –There was also additional large buying of EDZ6 9950/9975/100c fly yesterday, settled 2.25.  In the opposite direction, both the April and May (EDM6 underlying 99.26s) 9912/9937 combos were bought…paying for puts. May traded 1.0 about 60k, but settled flat.
–Interesting to note that gold had a strong day with GCJ closing +11.00 at 1241.80, nearing the high put in on the Feb 11 panic trade, when the SPX re-tested 1800 and treasuries soared higher, boosting interest rate implied vol to the highs.  As a comparison I marked ten year vol above 6.6 on Feb 11, vs 5.4 currently.  Also worth mentioning that the Japanese Yen has been strengthening, in spite of the late Jan move to negative rates by the BoJ.  The yen weakened temporarily on the ease, and then completely rejected that move.  Feels like a major painful squeeze coming (a much lower $/yen; test of 100).
–Today’s news includes Jobless Claims expected 270k.  Q4 Productivity -3.2%.  Factory Orders +2.0 and non-mfg ISM expected 53.1.

Posted on March 3, 2016 at 5:23 am by alexmanzara · Permalink
In: Eurodollar Options

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