Nov 15. Nearing targets

–Early Monday morning the ten year yield hit 230 before coming back to end the 222.2 at futures settlement, up 5.4 bps on the day.  The area of 235 to 239 is a target level.  Volume was heavy, and euro$ calendar spreads again pushed to new highs, with the peak one-yr spread Dec’17/Dec’18 at 42 bps (+3).  The red/green/blue butterfly (as a pack spread) has now exploded 13 bps in a week, a monster move, as reds/greens rallied that much harder than greens/blues.  By the way, from greens back there was slight flattening: Greens -6.75, Blues -6.125 and Golds -4.625.  The five year note yield ended near 165, only 20 bps away from the top of a three year range that has been tested several times.

–While there were position adjustments throughout interest rate options, some large new positions are clearly pressing the trend.  For example, Green June midcurve (2EM) 9725p traded 100k with open interest up the same.  Settled 6.5 ref 9850.0 (so 125 bps out of the money).

–While inflation expectations have been rising, the fall in oil since October has been particularly viscious. However, it made a spike low yesterday but held the low from August, then rallied, closing higher on a spirited afternoon run.  Higher yet this morning over 44.50, up over 2.30 from the low yesterday.

–Chinese yuan continues to sink, with USDCNY now 6.8535.  Some of the industrial metals like copper have had huge run ups as the Chinese ccy has depreciated; not sure whether its because Chinese industry is again ready to surge, or whether it’s inventory hoarding…hold metals rather than yuan.  In any case copper is showing some signs of a top, and the stronger USD in general is a weight on commodities.

–Retail sales today expected +0.6 and VC Fischer speaks this afternoon on bond market liquidity.

Posted on November 15, 2016 at 5:25 am by alexmanzara · Permalink
In: Eurodollar Options

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