Under the Counter
March 11, 2020
–There’s an old Bud Light commercial that’s pretty funny. Guy goes into the convenience store and grabs a six-pack of Bud Light but also quietly asks the Asian woman at the counter for a copy of Tongue and Cheeks. She can’t find it on the rack and yells out to another co-worker, “Hey, where do we keep Tongue and Cheeks? This guy want porno.” The co-worker, who is mopping the floor, gruffly shouts back, “Check under the counter. That’s where we keep all the really weird sh-t.” https://www.youtube.com/watch?v=xV6_7otLBRE
–Well, all I can say after reviewing the day’s action and prices is: We’re under the counter. Yields soared in treasuries and implied vols cratered. Both SPX and Nasdaq were +5%. At futures settles, 2yr +14.3 to yield 48.5 bps, 5’s +19.6 to 62.3, 10’s +27.3 to 76.8 and 30’s +31.1 to 1.25%. Hey, the thirty year is finally back above the Fed effective overnight rate! In eurodollars, all near calendars rose to new recent highs. EDH0/EDH1 is now the only negative one-year calendar at -34.25. The next one, EDM0/EDM1 closed at +1.5, and they widen from there. Red pack closed -7.375, greens -13.125, blues -17.625 and golds -21. The market expects the eases fast and hard, and the administration is floating all sorts of stimulus balloons, which is why the forward curve is steepening. BOE cut 50 bps this morning. Lagarde is pressing hard for fiscal stimulus, warning of a 2008 repeat. Stock futures have given back a large chunk of yesterday’s gains.
–The June TY atm straddle was down just over 1 point from 5’43 to 4’40 (TYM 137.5^). By the end of the day plain vanilla TY options were 5/64’s wide bid/ask with size at a fraction of ‘normal’ levels one-week ago. In back eurodollars, upside breakevens are right at the “zero-bound”. For example, EDM22 settled 99.35 and the 99.375 straddle settled 60. So upside breakeven of 99.975. As if zero really represents a cap. At one point during the day, the red March (EDH21) 9950 straddle was under 30 bps, with over a year left until expiration. It settled 32.0. EDM1 9950 straddle settled 36 vs 9951. Therefore the put is 17.5. Pretty cheap for 15 months away with a government that’s going to throw the kitchen sink at the virus.
–March midcurves expire Friday with atm straddles from 12.5 to 14.5. Ten year auction today.
Historic day
March 10, 2020
–SPX fell 7.8% yesterday with Nasdaq -7.3%. SPX hit the 61.8% retrace from the 2018 low to this year’s high. Nasdaq did not quite touch the 50% retrace. At the low SPX was close to a 20% pullback from the high of the year. Everything, including crude oil, has had a nice bounce overnight as the admin looks to unleash stimulus. With CLJ0 having plunged to 27.34 yesterday morning, it’s now 32.80.
–Near atm euro$ straddles came in hard. For example EDU0 9950 straddle settled 31 on Friday, but yesterday EDU0 9962^ settled 22.5. However, blue Sept (3EU) atm straddle was unchanged at 47.5, having been the 9925 strike Friday and the 9937.5 strike yesterday. Yields plummeted to new historic lows yesterday morning with tens hitting 31 bps and 30’s at 70 bps. Closes (at futures settlement) were significantly off the lows, with tens 49.5 bps, down 21 from Friday, and 30’s 93.8, down 26.5 from Friday. The convexity grab was relentless with 5/30 down 13 to 51 bps, though it may have run its course for now. Supply coming in the form of new tens and thirties tomorrow and Wednesday. Nominal treasury straddle levels have more than doubled from last Thursday to yesterday.
–Peak on the ED curve is EDH21 with a settle of 9960.5 or 39.5 bps. peak on the FF curve is FFQ0 at 9989.5 or 10.5 bps. The Fed has increased the size of repos. I was looking this morning for discount window borrowings but couldn’t find the data. In any event, it seems like the Fed can now wait for the FOMC meeting to pull the trigger on another 50.
–In another sign of stress gold/silver ratio matched the record high of 1991 at 99.50. Makes silver look a bit cheap and indeed as of this writing silver is up a bit and gold is lower as stocks bounce. As a point of reference, the ratio is now 3 times higher than the plunge low in 2011.
ZIRP
March 9, 2020
–Starting this morning with a link to CME price limits in S&P’s.
https://www.cmegroup.com/trading/equity-index/faq-sp-500-price-limits.html
| FAQ: S&P 500 Price Limits – CME Group7% decline. A 7% decline (Level 1 circuit breaker) in the S&P 500 Index before 2:25 p.m. CT will trigger a NYSE Rule 80B trading halt for both the cash equity market AND all U.S.-based equity index futures and options, including E-mini S&P 500 and S&P 500 futures and options.www.cmegroup.com |
We’ve obviously hit the hard limit overnight at 2819.0 in ESH0, down 5% from Friday’s VWAP reference price, which is down 145. As the day session opens the next circuit breaker will be down 203 or 7% at 2697. Then 13% and then 20%.
–Ten year yield is 50 bps, down 20 bps. The price of oil has rallied significantly off the low and is now above $32/bbl, but was down about 1/3rd from Friday’s close and is still down around 20% currently. In part, the Russians wanted to cause damage to US shale producers by not agreeing to production cuts, and the Saudis obliged with declaration of a price war, but I would bet my bottom dollar that discussions are already occurring for the US gov’t to buy US shale product for the SPR. Once again, governments are likely to transfer bad private debts onto public balance sheets. A forced move to Modern Monetary Theory. There are a few jokes about Theory vs Reality, but we’re about to live it, and it might not be so funny.
–Treasury auctions 3, 10 and 30 year paper this week, raising $54 billion in new cash. In dollars, reds (2nd year forward) are over the 9950 strike. The 100 calls are no longer a passing curiosity, now just another strike price subject to exaggerated claims (“Oh yeah, I bought 100 calls a long time ago. Sure I own ’em.”) On last night’s open I was able to buy some FFJ0 up to 9960.5 and FFK0 at 9967.5. Prices now are 9969.5 and 9980. August FF (FFQ0) have a high print of 9992.0 or 8 bps.
Wrath of the Market Gods
March 8, 2020 – Weekly comment
This past week was the stuff of Greek mythology. Everything is going along fine, and the next thing you know you’re chained to a boulder on a mountain and an eagle swoops down to eat your liver every morning (it grows back overnight). This of course, is the story of Prometheus, who was punished by Zeus for stealing fire of the gods and giving it to mankind.
The name Prometheus is translated as the ‘forethinker’ or ‘the one who thinks ahead’. According to a post in wikipedia, “Prometheus became a figure who represented human striving, particularly the quest for scientific knowledge, and for the risk of overreaching, or unintended consequences.” From D’Aulaire’s classic Book of Greek Myths, Zeus wasn’t finished with the punishment. He also had to deal with mortals. “He sent to earth a beautiful but silly woman. Her name was Pandora.” [all this by the way of background for my friend Beth].
You know how it goes from here. No, I am not talking about the chaos unleashed by Pandora’s box, although that might be an apt analogy at this point. I’m talking about the Fed, the champion of all humanity, playing with fire and operating with unintended ‘foresight’. Several Fed officials have concluded in previous speeches that negative rates aren’t a good idea for the US economy. So now, we’re going straight to QEEEEE. Sure, the $60 billion of t-bill buying is going to end sometime after the April tax date. Only to be supplanted by a much larger QE operation designed to cap long rates. Or that’s what they will say. The problem with that is, rates have already imploded. The two year fell 39 bps this week to just under 49 bps. Tens down 42 to 70.3 bps. 30’s down over 45 to 1.204%. I can’t even fathom this last one. US thirty-year bond at 1.20%!! Why, that has even matched the ten year yield in Greece. : – l
The real purpose of the new round of massive QE will be to monetize the unconstrained government debt. Deficits are already explosive and a slower economy with more emergency government spending like the $8 billion dollop passed for COVID is not going to help. By the way, in Japan, Abe is offering free loans to companies hit by the virus, and subsidies to affected workers. Northern Italy is going on lockdown. NY declared a health emergency. In skimming the Reuters main news site this morning, the first 20 out of 20 articles mentioned COVID-19.
The former incarnations of QE didn’t lead to inflation, but rather tended to be deflationary, as money created by the Fed flowed into investment funds smothering yields rather than juicing consumer spending. This time may be different… eventually. The political landscape has changed. Well-oiled global supply chains may now require duplicate structures; another layer of cost. For the companies that survive, there will be a big incentive to make up for lost revenues. In the medium term, there is certain to be economic harm from cancelled events which trickle down to all sorts of support businesses. For example, at Chicago’s McCormick Place convention center, the Housewares Show slated for March 14-17, with 60,000 attendees, has been cancelled. The economic slowdown is pretty obvious from the price of oil, where WTI CLJ0 fell 8% this week and is down a third from the start of the year. More on oil and the new and improved PRICE WAR below.
Let’s take a look at a few prices. Star performer this week was April FF which rallied 70 bps to close at 99.49 or 51 bps. Money market curves have forecast continued front-loaded easing. The peak on the Eurodollar curve is now the first red, EDH21, which also settled 99.49. All the easing is priced for the next few months. Be careful of what you wish for President Trump… For example, April to Aug FF is a spread of -26 bps, while April’20/April’21 is -28.5. I.e. the meat of the inversion is up front. On the FF curve, the peak contract is Jan’21 at a price of 99.805, just under 20 bps. Of course, with the post-ease Fed effective of 109 bps, another 50 bp cut at the March 18 FOMC would put it at 58 to 60 bps, and the price on FFJ20 at 51 bps implies even more of an ease. It’s incredible.
There are stories circulating about various funds and option market makers blowing up last week, Completely corroborated by price action. These moves simply don’t happen without extreme duress. One upstairs market maker we transact with said their systems were down on Friday afternoon when we asked for a quote. Maybe the systems did have a glitch. Then again, maybe the plug was pulled. There was talk of a fund being forced to liquidate shorts on the long end on Friday. Makes complete sense from price action. (BBG’s Beth Stanton article notes that long end futures were halted 5 times Friday due to the extreme move). 5/30 treasury spread which had soared up to 90 bps after the surprise cut, plunged an astonishing 25 bps on Friday alone, back to the levels from early in the month, ending 64.5 at the time of futures settlement. There was talk of a forced market-maker liquidation in equity options. Again, pretty apparent from VIX which exploded to 54 on Friday before coming back to close just under 42. The risk guys don’t pay all that much attention to market nuance when exiting positions. I recall I was once handed a fairly large ED option position on the CME floor and instructed to exit it by a friend at another clearing firm. Not at all large by today’s standards, and the market wasn’t particularly volatile at that time, but it still took me half the day to try to minimize damage. I am guessing the shoulder taps were occurring all week, with no one wanting to keep undercapitalized risk on the books over the weekend.
And there’s good reason to fear Monday. On Friday, the OPEC+ meeting in Vienna collapsed as Russia refused production cuts, and want US shale producers to feel the burn. WTI fell about 8% this week. The Saudis had shouldered a large part of the burden to keep production off the market, but now MBS has declared a price war, opening the production spigots and slashing the price of KSA’s crude to $8-$10 below the Brent benchmark. This, at a time when the House of Saud is already under severe pressure, with MBS arresting a few royals for plotting a coup. In late 2015 to early 2016 as WTI tumbled to $27/bbl, BBB credit spreads gushed to 300 bps. Most of the damage was in energy names. Currently, the BBB spread is around 170 bps, at a time when the virus is already causing companies to cut revenue guidance, which may, in turn, imply that debt servicing is suspect. The first victims in the BBB cliff have already been pushed over the edge. Perhaps there will be some forbearance in downgrades by the rating agencies. Then again, maybe not. In any event, there was significant buying of April and June puts on EDM0. A cascade of credit events is quite plausible.
OTHER MARKET/TRADE THOUGHTS
So what’s crazy? I reviewed my note from two weeks ago and I had cited the EDM0 atm 9850 straddle which had settled at 22.0, up from the previous week’s 20.5. On Friday the new atm strike was 99.375 and the straddle settled 34.5! The EDZ0 9937.5 straddle, with SIX months longer until expiration, settled 36.0 vs 9943.5. The EDU0 9950 straddle settled 31.0 vs 9947.0. I’ve only seen straddle inversion once before and that was during the financial crisis.
Another sign of extreme stress is in libor vs OIS. I will just give futures pricing examples. This week, forward implied lib/ois spreads surged 27.5 bps for March to 42.5 and 18 bps for June to 34.5! If Central Bankers have lost all control, who knows where spreads *SHOULD* be.
Treasury auctions 3, 10 and 30 year paper this week. From these yield levels I would think auctions will be sloppy and have significant tails.
| 2/28/2020 | 3/6/2020 | chg | |
| UST 2Y | 88.1 | 48.8 | -39.3 |
| UST 5Y | 91.3 | 55.9 | -35.4 |
| UST 10Y | 112.7 | 70.3 | -42.4 |
| UST 30Y | 165.7 | 120.4 | -45.3 |
| GERM 2Y | -76.9 | -85.8 | -8.9 |
| GERM 10Y | -60.7 | -71.0 | -10.3 |
| JPN 30Y | 27.9 | 31.1 | 3.2 |
| EURO$ H0/H1 | -56.5 | -42.5 | 14.0 |
| EURO$ H1/H2 | 3.0 | 9.5 | 6.5 |
| EUR | 110.27 | 112.86 | 2.59 |
| CRUDE (1st cont) | 44.76 | 41.28 | -3.48 |
| SPX | 2954.22 | 2972.37 | 18.15 |
| VIX | 40.11 | 41.94 | 1.83 |
https://en.wikipedia.org/wiki/Prometheus
https://www.greekmythology.com/Titans/Prometheus/prometheus.html
I suggest you panic
March 6, 2020
–Prior to this week, the Fed was engaged in soul-searching related to the mid-September repo surge. The current episode will probably make that one look like a walk in the park. Consider these settlements and current prices: On Tuesday, post-ease, FFJ0 settled 9921, FFN0 9940.5 and FFF0 9954.0. This morning, with net change from yesterday, and from Tuesday, FFJ0 9941.0, +7.5, +20, FFN0 9971.0 +8.0, +30.5, and FFF1 9979.0 +7.5, +25. Now compare that to EDM0 and EDZ0. On Tuesday, EDM0 9921.5 and this morning 9933.0, 0, +11.5. EDZ0 on Tuesday 9928.5, now 9942.5, +3.5, +14.0.
So, FFN0 to EDM0 spread has doubled from 19 to 38 since Tuesday. FFF1 to EDZ0 from 25.5 to 36.5.
–At the end of yesterday FFN0 was up 10.5 on the day and EDM0 came under selling pressure, trading 9927.5, -5.5. These are typically pretty stable money market rates and spreads. This surge in libor/ois is symptomatic of stress, and it doesn’t look like it’s going away. FFJ0 this morning has completely priced another 50 bp cut at the March FOMC meeting (or before). Money markets have an advanced case of the virus, while stocks are currently sniffling with a light cough.
–On Feb 21, the day after ESH0 peaked, FFJ0 settled 9843.5. It’s now up 100 bps in 2 weeks!! You want stress? The market is now clamoring for more front-loaded Fed relief. However, this doesn’t fall under the smug definition of ‘some insurance’ as Bullard intimated yesterday, it’s more like, ‘no GI Joe with the kung-fu grip’. For the youngsters out there, it means they panickin’. I can feel it.
–This is going to be a restless weekend for Fed members. Last Friday’s Fed statement didn’t calm the markets. Tuesday’s surprise cut didn’t calm the markets. Where’s the bazooka? Better yet, where in the hell is Beeks?
Front-loaded ease
March 5, 2020
–The market dialed down risk yesterday, with ESH0 soaring 117.75 to close at 3114.75. The Feb 20 high of 3397.50 to the subsequent low of 2853.25 has a 50% retrace at 3125. This level was tested yesterday, but appears to have failed as ESH currently is -59. Other examples of receding risk yesterday were seen in rate implied vol (treasury vol pictured below) and in precious metals which couldn’t rally in spite of a weaker dollar. The curve steepened as the market perceives frontloading with respect to Fed easing. All one-year calendars in euro$’s from EDM0/M1 back made new highs. Red/gold pack spread jumped 5 bps to 36.25, up 20 bps from the low set Feb 21, just after stocks peaked. In dollars, white pack +6.8125, reds +5.875, greens +3.625, blues +1.375 and golds +0.875. The ten year yield was down a couple of bps, marked at 99.9 bps at the time of futures settlement.
–Bank of Canada cut 50 yesterday. The US curve is smugly pricing all ease in the front. For example, FFJ0/FFV0 settled -38.5 while FFJ0/FFJ1 settled -39.5. That is, in the period after the March FOMC through September, the market expects one to two more cuts, but after that, nothing. Peak contract on the dollar curve remains EDH21, which settled +5.5 at 99.395, but EDU0 is very close at 98.38.
–Some example of profit taking yesterday. EDZ0 9950 calls were sold from 4.5 to 4.0, an exit of the 100k bought last week for 1.5, OI fell 130k. April FF traded to a high of 99.29, a rate of just 71 bps vs what should now be the current Fed effective of around 110 bps. So at the peak, the market was projecting odds of around 80% that the Fed goes 50 at the March FOMC meeting. Just after that high was made, Bullard made comments throwing cold water on the prospect of another aggressive ease at the meeting and FFJ0 settled back down at 99.22. In another example of odd pricing, EDH0/EDM0 atm straddle spread settled 17 bps, with March nearing expiration. (EDH0 9900^ 10.0s and EDM0 9925^ 27.0s). However, EDM/EDU straddle spread settled at just 1.5 (EDU0 9937^ 28.5s). Probably won’t be there this morning.
–California declares state of emergency. United Airlines cutting domestic flights.
Rapid and forceful ease. Is it enough?
March 4, 2020
–Fed cut 50 bps just two weeks before the regularly scheduled FOMC to 1-1.25%. This morning EDH0 is sub-1%, at 9901.25, along with the rest of the euro$ curve out through the golds. Ten year yield hit 89 bps yesterday and is just below 1% this morning. Many businesses are likely to see large temporary drops in revenue due to the virus, and are going to need very cheap financing to plug the gap. It’s not clear that the economy was at that point, and it’s also unclear that cheap financing will be available to firms that need it. A temporary lending facility would probably be the answer, but is likely too cumbersome to put in place. I think Powell should have articulated that cuts in rates were likely to be temporary to get the economy over the hump; perhaps the Fed doesn’t think underlying fundamentals are as strong and stable as they like to say.
–Reds through golds were up 8 to 10.5. Red/green pack spread (2nd to 3rd year) rose nearly 1 bp to a new recent high of 10. The week before last it was 1.5 bps. Obviously the surprise cut affected near contracts most, with EDH0 jumping nearly 21 bps. Implied vol tanked as further Fed moves are likely to be smaller. Peak contract on the ED curve is now the first red, EDH1 at 9933. The first one-year calendar that’s positive has moved forward to EDZ0/EDZ1 which settled +1.5. With the magnitude of this move, the market perceives adjustments to the FF target to be crammed into this calendar year. April/October FF calendar rallied by a whopping 18 bps to -28.5. This period will cover 4 FOMC meetings, April 29, June 10, July 29, Sept 16. At around 1/4%, the pricing suggests just one ease at one of those four meetings. April’20/April’21 settled -33.0.
–Biden’s strong showing in Super Tuesday voting may remove some tail risk to stocks, which appear to have rejected yesterday’s post-announcement plunge and are showing strong gains as of this writing with ESM +60 at 3057.0.
Long end suspect
February 28, 2020
–Extraordinary session yesterday with yields continuing to fall and stocks plunging from an early gain. SPX was down 4.4% and Nasdaq down 4.6%. Tens at the 3:00 pm futures settle were -1.5 to 1.299 but are lower by another 10 bps this morning. The reds have sliced through the 9900 strike like butter….red pack settled yest at 99.03125 and are 13 higher as of this writing. HUGE volume in eurodollar options,a lot of it in fronts. For example, buyer of 100k EDM0 9950c 1.5 and buyer of 100k EDN0 9962.5c for 1.5. On block trades alone ED options did over 1.5 million.
–Saw interesting good late trade; buyer of 4EZ 9800p for 3.0, 75 bps out of money with EDZ4 9875.0. As an example, the EDM0 9950c settled 1.5 and are also 75 out, but the Dec options have 288 days left vs 109. If we’re on the verge of ‘helicopter’ money, the back end could see soaring yields. In fact, after the futures settlement yesterday Ultra Bonds briefly went negative on the day before coming back. The idea of ‘where SHOULD it be?’ is going to evaporate in the long end. Vols are an indication, the chart below shows TY vol which has (in nearer maturities) exceeded the spike in Feb 18 associated with VIX blow up.
–Back euro$ calendars made new recent highs. Example, red/gold jumped over 5 bps yesterday to 26 bps. Red/green which was near +1 early in the week, settled 7.0. The market wants eases NOW.
Nearing an emergency ease?
February 27, 2020
–Once again, yields made new lows with tens -1.6 bps to 1.314%… though once again, at the end of the day, there was heavy selling of fixed income. Stocks rallied early but faded and have made new lows overnight. Industrial commodities are showing very little sign of a bounce. CLJ0 is down $1 this morning at $47.75. Copper has plunged over 10% from the high of this calendar year, and Aussie continues to make new lows. The back part of the curve, for example reds to golds, +1.875 yesterday, is starting to steepen.
–Germany announced that it may loosen budget rules to provide fiscal stimulus. The US announced new virus case on Long Island and Trump called on Pence to lead the US virus response. San Francisco has declared a public emergency.
–I initially didn’t think the Fed would respond with lower rates. However, it’s pretty clear that the US is a flow economy rather than a wealth building, save-for-a-rainy-day economy. Borrow to buy, or lease. Depend on the monthly flow of income to service the payments (easily seen with stretched auto loan maturities and leases). In a way, the repo crisis of September is emblematic… the system risks seizing up when funding becomes scarce. If businesses and homeowners need to borrow to meet obligations (if income takes a virus hiatus) the Fed probably should provide funding as cheaply as possible.
–In terms of timing of a possible Fed ease, it’s moving closer as April FF have rallied from 9843.5 last Friday to 49.5 yesterday. Six bps is 25% of an expected 25 bp move at the March meeting. In euro$ it’s somewhat interesting that all the virus related buying was in EDM0 with the front EDH0 more or less anchored by the daily libor settings. This can be seen in the EDH0/EDM0/EDU0 futures butterfly which has dropped like a rock from -3 to -16.5 since mid-Feb. The reason is that H/M has fallen from -12 to -27 while EDM0/U0 moved from -8.5 to -10.5. The March FOMC is March 18 while the expiration of EDH0 is March 16. I.e. the meeting is after expiry. EDH0 appears to be indicating smaller odds of an ease than April FF. There are just under three weeks for the FOMC and a bit over 2 weeks for EDH0 expiry. Might be enough time for full blown panic to occur in the US (whether warranted or not). Corp spreads are starting to widen. I now think it’s a mistake to discount the possibility of a 50 bp move in March. If it were to be the case, there would have to be a Fed statement or speech to prepare the market. I would now exit the EDH0/J0 spread recommended shorting at -2 to -2.5, settled -9 yest.
And…. it’s gone
February 26, 2020
–Stocks continued to drop yesterday with SPX down another 3% and now lower on the year. Nasdaq is around flat on the year. Bonds on the other hand have made significantly lower yields. Tens fell another 4.2 bps to 1.33%, while 30’s fell 3 to 1.802. Ten year treasury to inflation-indexed spread made a new recent low at 1.54%. On the euro$ curve, the 7th quarterly contract is the highest on the board, having settled 9899 and traded above 9900 (or below 1% yield). The last time the 7th contract traded above 9900 was in Q3 of 2016 when the FF target was 0.25 to 0.50 and EFFR was around 40 bps.
–New low in the lowest one-year euro$ calendar which is the front EDH0/EDH1 spread at -50.75. The low for 1st to 5th was last year -85 bps. It’s a bit harder to make new lows from here, with FF target already so low. Skew indicates the same. As an example, every day when I mark straddle settles, as the ED market has moved to higher strikes, atm straddles have been 1 to 2 bps richer. Using the 7th quarterly, EDU1, atm 9887.5 straddles settled 63.0 on Monday vs 9893.5, but the 9900^ yesterday settled 62.0 vs 9899. It becomes harder to justify equidistant calls a lot higher than puts as ED prices are now so much higher than current libor and approaching the zero “bound”. There was some notable profit taking in ED calls, specifically EDU0 9875c sold at 20.0 nearly 100k with open int declining 64k. Settled 19.25 vs 9877.0. There’s a lot of negative carry…either the Fed signals an ease soon or FI pulls back.
–JPM announced yesterday it would tap the discount window from time to time. This follows Quarles Feb 6 speech to open the window for repo rather than set up a standing facility. If JPM borrows from the discount window, stigma should be removed from what is currently thought of as an emergency borrowing facility. As I mentioned yesterday, this should alleviate end-of-year pressure in Dec contracts. Interestingly, the EDU0/Z0/H1 fly went from 7.5 to 6.0 after this announcement, but came back to close strong at 7.0; it had traded down to 4.0 post-Quarles. However, EDU1/Z1/H2 fly yesterday went from +1.0 to -1.5 with U1 +5.5, Z1 +6.0 and H2 +5.0.
–On a personal note, I sold out some VIX calls yesterday and swapped into canned goods, rice pasta and a case of 3-liter cans of olive oil.
