March 4. Employment data and policy divergence

–Employment today with NFP expected 190k and avg hourly earnings +0.2%.  Treasuries appear vulnerable going into the data, but implied vol has been under consistent pressure and is going into the data at the low of the week, not exactly suggestive of downside fear.  Additionally, open interest shows modest declines in treasuries yesterday, another indication that hedges aren’t deemed essential at this level.  There were, however, 10k purchases of TYM 124 and 124.5 puts which settled 7 and 8.  At about 12 bps per strike, the top strike is around 60 bps away.  As mentioned yesterday, blue or gold midcurve puts are likely the better buy.

–Yesterday German Schatz hit a new low yield of -58 bps.  I have attached two charts, one of the US two year vs German and the other of red sept euro$ vs euribor.  Two year spread is right at the extreme, 142 bps.  ED/ER spread is about halfway back.  Makes it appear as if one should sell schatz and buy US, even in front of the upcoming ECB meeting.  Brainard’s thesis in last Friday’s speech that Central Bank policy divergences are likely to be muted is under going its own ‘stress test’.

Schatz v GT2


eru7 v edu7




Posted on March 4, 2016 at 5:17 am by alexmanzara · Permalink
In: Eurodollar Options

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