March 31. Euro$ option premium suggests demand for insurance for the week ahead.

–Ten year yield rose 4 bps Friday to 271.  Implied vol in interest rates firmed and closed at the highest levels of the week.  Friday to Friday changes in futures levels were fairly small.  For example, EDM6 fell 2 bps from 9824 to 9822, yet Green April 9825 straddle actually gained value, from 18.5 to 19.5.  Green June straddle rose from 36 to 37.5.  Blue June 9725^ rose from 37.5 one week ago to 39.5 Friday, with futures having changed only 0.5 from 9725 to 9724.5.  Week over week change in TYM 123.5^ was 1’57 (ref 123-145) to 1’56 (123-18).  Premium demand due to geopolitical concerns  and a fairly big news week ahead, with a Yellen speech this morning, ECB meeting and US employment data.
–As mentioned in weekly comment ( below ), green June midcurve put open interest has exploded to 2.4 million contracts, which compares to 761k open in EDM6 underlying future.  The market has moved toward the idea of rate hikes starting next spring or summer, with 25 per meeting, just as occurred in 2003.  However, with 8 Fed meetings per year, complete certainty of such a scenario would suggest one year calendar spreads of 150.  The peak is still EDU15/EDU16 at 114.5.  Some of the nearer one year spreads did make new recent highs on Friday, for example EDH15/16 rose 3 to 103.
–Interesting piece in the Telegraph with several banks warning about potential capital outflows from China.

Posted on March 31, 2014 at 4:25 am by alexmanzara · Permalink
In: Eurodollar Options

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