Nov 23. Trump: the volatility denouement

–Tuesday was as large of a vol crush as I have seen recently.  Many euro$ straddles lost 2-3 bps. (Perhaps Kanye was just long vol?)  As an example consider 0EH 9850 straddle (red midcurve March) that settled 28.5 on Friday, then 27.5 Monday, and 26.0 yesterday.  2EH 9812 straddle (green march midcurve), settled 41 on Friday and 38.5 yesterday.  EDU7 9875 straddle was 30 on Monday and settled 26.5 yesterday, with 300 days until expiration (so linearly less than 1/10th of a bp per day decay).   TYF 125^ was 1’58 Friday and 1’41 yesterday (ref 124-28 and 125-015). Net changes in futures were small, with rates easing a few bps.  Ten year treasury fell 1.6 to 231.7.  Seven year auction today.

–The Fed releases the minutes from the FOMC meeting earlier this month, as a hike at the next meeting is all but assured with January Fed Funds trading 9937/37.5.  The Fed effective has been 41 bps; Jan FF indicate 63 bps.

–5/30 treasury spread has been selling off as the belly of the curve has led the way to higher rates.  From a high of 140 just after the election to 123 now, this spread is now around the halfway point of its rally since the start of September (from 103 to 140) and should find strong support here.

–An interesting post on ZH says “US Municipal Bond yields have now risen for 10 straight days, spiking from 1.72% to 2.34% today – the highest since July 2015.”  Obviously markets continue to be roiled by Trump’s victory, and perhaps the tax benefits of munis aren’t quite as compelling in the current environment.

–Finally, while you have the tin foil out for wrapping Thanksgiving leftovers, consider making yourself a hat….

This is a fascinating article about debit cards and surveillance.

Posted on November 23, 2016 at 5:19 am by alexmanzara · Permalink
In: Eurodollar Options

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