Nov 19. Yen making new lows. Fed minutes today

–A few quick thoughts this morning.  First there are a lot of odd changes in open interest, especially in ten year options, will summarize below.  There was a big jump in Feb treasury option trading yesterday, notably a new scaled buyer of 10-12k TYG 126.5 straddle from 207 down to 204.  Feb options expire Jan 23, so the Jan 28 FOMC is not captured, but the minutes from the Dec meeting will likely be released on Jan 7.  Implied vol was lower across the board as yields edged lower.  With 3 1/2 weeks to go all Dec midcurve straddles are 20 bps or below, having declined 1-1.5 bps yesterday.
–Which brings us to today’s minutes from the Oct FOMC, which had a hawkish tilt.  Perhaps the minutes will reinforce the message, though a SF Fed paper from a couple of days ago suggested that monetary policy was not increasing inflation risks, which are actually skewed lower.
–Regarding CB policy and outcomes, look no farther than Japan this morning, where the yen continues to make new lows in the wake of massive QE.  $/yen is 117.60 and EURJPY is 147.24 vs 146.50 late yesterday…the highest since 2008 (high of that year was 170).  In spite of the forex move, Nikkei is lower this morning.  The situation is unstable…go home Japan, you’re drunk.   A story on ZH also notes problems in China, with iron ore at the lows of 2009, down 50% in 2014.  However, the Dec Copper contract continues to hold just above 3.00 for now.  (Every time it gets below $3 I expect a rapid drop to 2.50, but it always bounces).
–The big commodity story is Oil, which plunged again yesterday to trade 7425 late, just $1 off the low set last week  (CLZ was 102 in July).  With the slide in oil and general decline in inflation expectations, it wouldn’t be surprising to see treasury curve trades break through support areas to new lows.  For now, 5/30 is holding 140 (144 close) and 5/10 remains above 70, but I think the latter will go to lower 50’s before year end.

–OPEN INTEREST: On Monday, open interest in red euro$’s jumped on light volume, for example EDZ5 OI was +100k.  Apparently the SF Fed paper convinced some to pour into new longs as the idea of a hike in 2015 diminishes.  However, even though the market was steady to higher yesterday, OI in red euro$’s DECLINED 190k.  Possible mistake in calculations?

But even more surprising is some of the changes in WAY out of the money treasury options.  TYG 103, 104, and 105 puts traded c-7 in total of about 12k…new buyer.  TYH 101p settled 1 and traded 12k as well.  TYZ 103 and 103.5 puts showed trades of 19k each with a decline in OI.  So it appears to be some sort of roll…but why so far out?  TYH 116p settled 1, by way of comparison.  TYH 151.5 and 152.5 calls both added 27k to open interest.

Posted on November 19, 2014 at 5:22 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply