Oct 13. China slows; steady depreciation of yuan

–Quiet trade in interest rate futures though one-year ED calendars continued to press to higher levels.  For example, EDH7/H8 settled 19, up 0.5, highest since late June.  Auctions came without drama; 30 year bond today.  FOMC minutes were also pretty much as expected – some members wanted to hike in a close call.  Interestingly stocks rallied after the minutes, only to give it back and close lower by the end of the session.   Same with Euro, which closed at the low of the day (110.10 late, -0.44).  DXY was at a new high late of 97.96.

–This morning stocks are lower and the USD stronger.  China likely the main catalyst.  From Reuters, “China’s September exports fell 10 percent from a year earlier, far worse than expected [-3%], while imports [-1.9%] unexpectedly shrank after picking up in August.”  From Bloomberg, “China’s exports dropped the most since February as global demand remained tepid, adding to pressure to the yuan, which is near a six-year low.”  CNY this morning 6.7316 as the Chinese currency continues to depreciate.

–Big trade yesterday was a steepening block, +50242 TYZ 129-25 / -12790 WNZ 177-20.  About $4.1 million per bp ($323 / bp on WNZ, $82 in TYZ6).    This one trade accounted for virtually all of the change in open interest yesterday, with tens adding 49.3k contracts and the ultra bond +8738.  Although Fed members are still concerned about repressed inflation, someone thinks premium is coming back to the long end of the curve (making it all the more puzzling that USZ vol remains close to 10%).  This trade also dovetails with the idea that Japan is only targeting the curve out to ten years…

–With stocks poised to test lows from early September, there’s an interesting skew article on Bloomberg:

“In the options market, traders are paying about twice as much for two-month contracts protecting against a 5 percent drop in the SPDR S&P 500 ETF, relative to bullish ones, according to data compiled by Bloomberg. The measure reached a record on Sept. 30, the data show.”


This article notes that VIX isn’t exactly setting off alarm bells, having closed at 16.9 yesterday, well below the Sept hike above 20, and the late June surge over 25.

–Finally, from a friend’s commentary yesterday: Gold in GBP terms is +42% ytd! (thanks AOK)


Posted on October 13, 2016 at 5:13 am by alexmanzara · Permalink
In: Eurodollar Options

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