Positioning for NFP

April 4, 2024
*************

–New lows in treasury futures on heavy put buying first thing yesterday morning.  TYM4 low 109-09+ which was -13+ and USM4 116-24 which was -31. 

Big pre-data TY put buys

TY wk-1 109.00p cov 109-135, 11 paid 10k
TY wk-1 109.25p cov 109-125, 18 paid 15k
FV wk-1 105.75p  5.5 paid 50k
Week-1 options expire tomorrow, which is also the employment report.

–However, ISM Services and Prices lower than expected: Services 51.4 vs 52.8 exp and Prices lower than any time since 2020 Covid low, at 53.4 vs 58.4 expected. Both stocks and bonds reversed early weakness and traded higher.  Curve edged slightly more positive.  2/10 squeaked out a marginal new recent high at -32.3; 2’s -2.3 bps at 4.676% and 10s -0.8 to 4.353%.  SFRZ4 thru reds and greens +2 to +2.5.  Powell often cites Services as a sticking point hampering the Fed’s inflation goal, so this report keeps easing hopes alive.
 
–Bowman talked about the discount window (it seems the Fed is getting ready for usage to ramp up since BTFP ended).  Powell repeated that the Fed can wait to see how data develops before easing.

–There were also some large SOFR option plays:  SFRN4 9462.5/9450ps 0.5 paid 35k, appears to be rolling up from 9450 longs.  Settled 0.5.  
SFRZ4 9600/9650/9700c tree bought for 0 to 0.25 30k and the 9600/9700c spd bought for 8.0, 25k.  Open interest indicates that longs in the upper strikes were exited to roll into 9600 calls.
9600c 14.0 settle, open int +48k
9650c  8.5 settle, open int -9.6k
9700c 5.25 settle, open int -31k
The 9600c now have 185k open, the most of any call outside of the 9700 which still has 226k.  Obviously the 9600 or 4% strike would take a lot more than three rate cuts to achieve.

–A more specific rate cut play was a sale of 30k FFN4/FFQ4 spreads at -8.5.  The FOMC meeting is July 31, so anything that occurs at that meeting will not affect FFN4 but will be fully priced into FFQ4.  In early Feb the spread was near -25, indicating near certainty of a quarter-point cut at that meeting.  As easing hopes faded, the spread rallied (said another way, both contracts sold off, but August harder).  The spread of -8.5 is about 1-in-3 chance of ease.  Spread settled at 9483.0 (5.17%) and 9492.5 (5.075%) or -9.5.  Note that current EFFR is 5.33% so the August contract has one ease fully priced (5.08%).  There are three FOMC meetings before August, May 1, June 12 and July 31.

–A few more Fed speakers today but it’s hard to believe anything new will be said.  Jobless Claims expected 215k.  Trade figures.  NFP tomorrow expected 200k.

Posted on April 4, 2024 at 5:05 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Powell again; Taiwan earthquake

April 3, 2024
*************

–7.4 earthquake in Taiwan.  (sell USD assets to pay for re-building?)

–Eurozone inflation falls to 2.4% vs expected 2.6%.  Core 2.9% vs 3.1% last.

–From MNI yesterday:  Cleveland Fed Mester (’24 voter but retiring in June) won’t rule out a rate cut in June, while SF Fed Daly said three rate cuts in 2024 is still a “reasonable baseline”.

–Powell speaks today at 12:10 EST on the Economic Outlook.  Preceded by Bowman on the Fed’s Role as Lender of Last Resort and followed by Kugler, again on the economic outlook. Mester mentioned the discount window yesterday and making sure banks have proper collateral to pledge (almost as if they expect it to become much more important).

–Other news includes ADP expected a bit higher than last reading of 140k.  ISM Services expected 52.7 from 52.6.

–Curve bear steepened yesterday.  2y note down 1.5 bps to 4.699%, while 10y rose 3.2 to 4.361% and 30y rose 4 bps 4.507%.  Both the 10y and 30y are right around the halfway back levels from the high yields of last year (set in October) to the December lows.  The 50% levels are 4.39% and 4.54%. 

–Large open interest change in FV, +86k even as the futures were only -1.25/32 to 106-135s.  Early new buys of way-out calls: +25k FVK4 108.75c for 2 (1.5s) and 50k FVK4 109c for 1.5 (1.0s).  Large open interest numbers are sometimes thought of as tinder for the next big move as one side or the other is forced out.  In SOFR large buyer of about 35k SFRU4 9500/9525/9550 c fly for 4.5 to 5.0, settled 4.75 ref 9509.  We’ve flirted around with longs at the 9500 strike with March’24 and June’24; as of now that strike is in the money in Sept, but I think there’s about as good a chance that we blow through the top strike as fall below 9500.  Of course the long fly targets the middle at 9525.

–Crude oil CLK4 is holding above 85.  Silver breaking out to the upside, following gold’s strong lead. Gold/silver ratio easing lower.

–Here’s the earthquake map from USGS.gov

Posted on April 3, 2024 at 5:39 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Oil bid

April 2, 2024
**************

–The May WTI contract (CLK4) hit a high of 84.96 this morning, up 1.25.  This eclipses the high from last September.  Escalation in mideast hostilities as Israel bombed Iran’s embassy in Syria is a likely contributor.  However, US treasuries aren’t really seeing a safety bid, even after a hard sell off yesterday.

–ISM Mfg was stronger than expected, first time above 50 since October 2022.  Actual 50.3 vs 48.3 expected.  Prices were 55.8 vs 53 expected.  New Orders 51.4 vs 49.8….but Employment 47.4 vs 47.5.  Eurozone Mfg PMI this morning weak at 46.1.

–Treasury yields soared with tens up 13 bps to 4.329% and 30s up 12.4 bps to 4.467%.  On the SOFR strip greens and blues were weakest (3rd and 4th years forward) with SFRM6 through SFRH8 down 15 to 15.5.  A few near SOFR calendars made new highs.  For example, while SFRM4/M5 is still the most inverted one-year calendar, it made a new high above -100, settling at -98.5 (9482.5/9581.0).  SFRM4 was -4 on the day, but M5 was -12.5.  Forward contracts continue to squeeze out easing expectations; Powell speaks again tomorrow.  

–Today’s news includes JOLTs and Factory Orders.  A few Fed speakers:  Bowman on Bank Mergers and Acquisitions (important given renewed stress in regionals).  Mester on the economic outlook. 

Posted on April 2, 2024 at 4:34 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Record high Gold

April 1, 2024
*************

–Little reaction to Friday’s PCE data (essentially as expected with PCE yoy 2.5% and Core 2.8%) and Powell’s patience with respect to cutting the funds rate (“we don’t need to be in a hurry to cut”).

–TYM4 settled 110-255 Thursday and prints 110-265 this morning while USM settled 120-14 and prints 120-05.  Stocks are, of course, higher.  China’s Caixin Mfg PMI rose to 51.1, supporting equities there. No yen intervention yet with $/yen 151.38.  CNY at its weakest level of 2024 at 7.23. New all-time-high gold above $2250.

–On Thursday, there was a new buyer of 50k TY 112c for cab-7 (= $7 or $350k total prem).  This was an add to the previous day’s buy of 50k 112.25c for the same price.  Monday options don’t generally have large activity, but on Thursday the calls saw an open interest increase of 103k.  On the CME website the symbol is VYO for Monday opts.

–News today includes Mfg PMI, expected 48.3 from 47.8 last.  It’s been sub-50 since October 2022.  Prices paid expected 52.9 from 52.5.  Construction Spending expected +0.7.  Powell speaks again on Wednesday.

–I attached a chart of US currency in circulation (% change yoy).  I suppose it’s an anachronism since few purchases are made in cash anymore. It’s been said there are more $100 bills in Russia than in the US as it’s a convenient store of value in many countries. Current level is $2.339T, a bit less than the total crypto mkt cap.  Probably just a coincidence but the current growth rate of 1.2% which has been in steady decline since covid, is about where it was just prior to the 2001 and 2008 recessions.

Posted on April 1, 2024 at 5:25 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Is Treasury Issuance an Emergency?

March 30, 2024
*****************

A Fed paper from June 29, 2023 is entitled ‘Impact of Leverage Ratio Relief Announcement and Expiry on Bank Stock Prices’.  That’s one of the google results when I searched for information on the March 5, 2024 ISDA letter requesting agencies (starting with the Fed) to “…revise the SLR to permanently exclude on-balance sheet US Treasuries from total leverage exposure.” (SLR is Supplementary Leverage Ratio)

I only became aware of this ISDA request because I listened to the most recent MacroVoices podcast featuring Luke Gromen (thanks DK).  I searched for more information but the search didn’t really turn up much, though I am sure it was addressed (without bias) in papers by bank research depts.

From the June 29, 2023 Fed Note:

On April 1, 2020, as part of these efforts, the Federal Reserve announced an interim final rule, set to expire on March 31, 2021, that would temporarily exclude U.S. Treasuries and deposits at Federal Reserve Banks from the calculation of the Supplementary Leverage Ratio (SLR). One of the main goals of this interim rule was to ease strains in the Treasury market resulting from the coronavirus and increase banking organizations’ ability to provide credit to households and businesses.

Relief from the SLR regarding Treasuries was an EMERGENCY measure.

Now here are a couple of excerpts from the March 5, 2024 ISDA request: (ISDA is Internat’l Swaps and Derivatives Ass’n)

A permanent exclusion would better promote the stability and resilience of the U.S. Treasury market than the current framework, which has required adjustments during periods of significant market stress. More broadly, an exclusion would help support market liquidity in the context of projected increases in the size of the U.S. Treasury market and the importance of bank participation in the market.

An exclusion for U.S. Treasuries from the SLR and GSIB surcharge would provide more capacity for banks to expand their balance sheets and provide liquidity during times of stress. There are significant benefits to bank participation in these markets given that banks are highly capitalized, have sophisticated risk management processes and are subject to comprehensive prudential regulation and supervision. [page 7]

THEY ARE ASKING FOR PERMANENT EMERGENCY RELIEF AT A TIME OF ROBUST GDP, TIGHT CREDIT SPREADS, AND UNEMPLOYMENT NEAR HISTORIC LOWS.  Where’s the potential emergency?  Government debt.

Here’s how I might summarize this request, using slightly different language.

The Federal Gov’t is spending like a drunken sailor.  You know it, I know it. The risk is that a high degree of market stress will ensue if debt associated with spending can’t be absorbed.  As the biggest banks, we know this request is basically a subsidy…now that deposits have flowed into G-SIBs from risky regional banks we can fund the debt with positive carry – if we don’t have the SLR weighing us down.  We added the bullshit line about macroprudential oversight as cover, everyone knows the regional bank crisis was partially the result of failed supervision.  Sure, this exemption will benefit G-SIBS… and maybe as the Commercial Real Estate bubble drags down a few more regionals we can gracefully absorb them given the extra capital we’ll be generating.  You help us, we’ll help you.

There’s the proposal.  It’s not exactly bending down on one knee.  More like a threat.  What if treasury yields scream back to October’s highs (or higher) before the election?  What would happen to stocks?  Where would mortgage rates be?  How would that impact the election?

Note that there’s another Fed paper from August 2023 examining Dealer’s Treasury Market Intermediation and the Supplementary Leverage Ratio.  It concludes:

Overall, our inspection during the temporary exclusions of Treasury securities and reserves from TLE between April 2020 and March 2021 does not show a noticeable effect on the big six dealers’ Treasury intermediation, including direct holdings of Treasuries and SFTs backed by Treasuries.

We’ll ignore that conclusion.

******************************************************

The PCE price data came in essentially at expectations with Core Deflator +0.3 MoM and 2.8% YoY though there was a slight revision higher for the previous month.

Powell on Friday: “…the decision to begin to reduce rates is a very, very important one because the risks are two sided.  If we reduce rates too soon there’s a chance that inflation would pop back… There’s also a risk that we would wait too long and …in that case it could be an unnecessary, unneeded damage to the economy and perhaps the labor market.”  [the dual mandate]

“The economy is strong. …growth around 2% this year… That means that we don’t need to be in a hurry to cut.”  [slightly softer than Waller’s comments]

By the way, what was the deal with interviewer Kai Ryssdal’s ‘Where’s Waldo’ socks?

Anyway, the  NY Fed Q1 Nowcast is 1.9%, and the Atlanta Fed’s GDPNow which was updated Friday is 2.3%. 

The Employment Report is Friday 5-April.  On Friday (March 29) ZeroHedge highlighted the Philly Fed quarterly report from March 14 showing substantial downward revisions in payrolls. 

https://www.philadelphiafed.org/-/media/frbp/assets/surveys-and-data/benchmark-revisions/2023/early-benchmark-2023-q3-report.pdf?la=en

The only reason to mention the ZH post is that the Fed’s dual mandate is becoming more evenly balanced with respect to the Fed’s next move.  Powell speaks again on the economic outlook on Wednesday, April 3.

Just a few other calendar highlights
4/1 ISM Mfg
4/3 ISM Services
4/3  Governor Bowman (before Powell) on Bank Liquidity. She also speaks 4/2 re: Bank Mergers
4/3  Chair Powell
4/3  Governor Kugler on policy outlook
4/4  Richmond Fed Barkin on Econ Outlook
4/5  NFP

4/10 CPI & Fed minutes
4/11 PPI

SLR could be a topic for Bowman and might pop up in FOMC minutes

Curve flattened (became more inverted) last week on Waller’s comments, echoed by Powell on Friday.  However, 2/10 closed Thursday at -42.4, still above the low of the year of -45.4 on March 6.  Low from December of last year is -53.6.  Strong support -62 to -53.

3/22/20243/28/2024chg
UST 2Y455.3462.26.9
UST 5Y419.8421.11.3
UST 10Y421.6419.8-1.8
UST 30Y439.1434.3-4.8
GERM 2Y282.7284.82.1
GERM 10Y232.3229.8-2.5
JPN 20Y149.2145.2-4.0
CHINA 10Y230.9230.6-0.3
SOFR M4/M5-109.0-107.02.0
SOFR M5/M6-37.0-44.0-7.0
SOFR M6/M7-1.5-5.5-4.0
EUR108.12107.89-0.23
CRUDE (CLK4)80.6283.172.55
SPX5234.185254.3520.170.4%
VIX13.0613.01-0.05

https://www.federalreserve.gov/econres/notes/feds-notes/impact-of-leverage-ratio-relief-announcement-and-expiry-on-bank-stock-prices-20230629.html

https://www.isda.org/a/h3sgE/ISDA-Submits-Letter-to-US-Agencies-on-SLR-Reform.pdf

https://www.federalreserve.gov/econres/notes/feds-notes/dealers-treasury-market-intermediation-and-the-supplementary-leverage-ratio-20230803.html

Posted on March 30, 2024 at 11:56 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Balance of risks says WAIT

March 28, 2024
*****************

–From Waller last night:

My judgment on the balance of risks for monetary policy, which I explained in a speech on February 22, hasn’t changed: The risk of waiting a little longer to cut rates is significantly lower than acting too soon. 

https://www.federalreserve.gov/newsevents/speech/waller20240327a.htm

–Curve flattened in response with red SOFR contracts bearing the brunt of selling. Currently SFRM4 is 9485.5 -3.0, M5 is 9592.5 -7.0, M6 is 9630 -6.0, M7 is 9639.5 -2.0.   

–CBO director Phillip Swagel, in an interview with the FT warned about the trajectory of US borrowing:

“The danger, of course, is what the UK faced with former Prime Minister (Liz) Truss, where policymakers tried to take an action, and then there’s a market reaction to that action,” he told the newspaper, referring to the investor backlash against plans for unfunded tax cuts that forced Truss to resign after just 45 days in office.(CNN) 

–Today’s news includes final Q4 GDP, Jobless Claims 212k, Chgo PMI 46.0 from 44.0, Uof Mich final Sentiment and inflation expectations.

–The SOFR option pit closes at noon, so all month-end settlements will be at noon.  Markets are closed on Friday.  PCE prices are released tomorrow and Powell speaks at the SF Fed.

Posted on March 28, 2024 at 5:29 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Fed HODL

March 27, 2024
*****************

–Yields down slightly in a quiet session.  Tens -1.7 bps to 4.234%.  Implied vol continues to compress in front of the long weekend. Good 5yr auction.  Capital Goods Orders non-defense solid at +0.7.  However, consumer confidence slipped to 104.7, lower than 107 expected (middle of the 2023 range, so no big deal).

–Buyer of 20k SFRQ4 9487.5/9475/9462.5p tree at 1.25 and slightly higher synthetic.  Settled 1.25 ref 9517.0 in SFRU4 (4.0/1.75/1.0).  The July version settled 1.0 (3.0/1.25/0.75).  The June version is 3.75 (6.5/2.25/0.50), and that’s with SFRM4 settling close to the upper strike at 9488.5.  Looking for a Fed on hold; see Waller below. 

–7 year auction today.

–Waller speaks at Econ Club of NY tonight at 6:00pm.  His speech on Feb 22 was titled “What’s the Rush?” [to ease].  One line: “I am going to need to see at least another couple more months of inflation data before I can judge whether January was a speed bump or pothole.”  In terms of El-Erian’s assessment that the Fed is shifting to a target range on inflation somewhat higher than 2%, we’ll see if Waller modifies his stance from the Feb 22 speech.  This doesn’t sound like a guy abandoning the 2% target:

…we could take our time and collect more data to ensure that inflation was on a sustainable 2 percent path

This means waiting longer before I have enough confidence that beginning to cut rates will keep us on a path to 2 percent inflation.

More data, and more time, will tell whether January’s CPI report was just a bump in the road to 2 percent inflation.

…continued progress toward the Federal Open Market Committee’s (FOMC) 2 percent inflation goal.

…I still consider them to be somewhat elevated to achieve our 2 percent goal.

–BOJ’s recent rate hike did little to stem the slide in the yen.  Today there are official warnings of intervention with $/yen above 151. A year ago gold priced in yen was 255961.  Now it’s 328823, up 28%. 

From ycharts.com

Posted on March 27, 2024 at 5:08 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Accidents will happen

March 26, 2024
******************

–Yields rose Monday with tens up 3.5 bps to 4.251% and SOFR contracts down 3.5 to 4.0 from Dec’24 to Dec’28. The lowest contract on the strip is front June’24 at 9489.0 while the peak is Dec’26 at 9635.5, a spread of just -146.5 over two and a half years. Just in January the near 1-year calendar was more inverted (around -160).  Current SFRM4/M5 is -107.5.  Forward rates have moved slightly higher, and of course there are still trades fading the three-cut dot plot.  For example, yesterday a buyer +20k SFRU4 9512.5/9493.75/9487.5p tree 2.50 to 2.75, which would probably work best in the scenario Bostic mentioned yesterday: just one ease this year. (SFRU4 9518.5 settle).

–I looked at the dot-com unwind from 2000, and it’s worth noting that the FF target was slashed by 250 bps in just six months starting in 2001, from 6.5 to 4.0%.  That was before 9/11, which prompted a 50 bp cut to 3.0%, followed by another in October.  Sort of a reminder not to leave open upside shorts.

–Solid 2y auction yesterday, with 5s today and 7s tomorrow.  Cocoa prices continue to skyrocket, having more than doubled since January.  From Barchart: “Cocoa prices catapult to record highs as Ghana’s output expected to plunge.”  What?  We’re depending on Ghana for chocolate?  Yes, and dependent on Taiwan for semis.

–On the other hand, US oil production has been increasing.  However, CLK4 remains stubbornly bid at 81.85 late (+1.22).  Near contracts trade around a $7 premium to next year, for example CLM4/M5 was 7.29/7.32 late.  RJOs Tom Fitzpatrick made the point that since high oil prices don’t seem to be driven by demand, they act more as a tax on the economy.

–The dramatic collapse of a bridge in Baltimore as a ship accidentally hit a support, will likely spark calls for infrastructure investment.  Broken bridge (window) fallacy?  

Posted on March 26, 2024 at 5:51 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Lemons

March 24, 2024 – Weekly Comment

*************************************

The Fed kept three cuts for 2024 in the Summary of Economic Projections (SEP).  The Bank of Japan hiked, eliminating the negative funding rate and YCC.  The Swiss National Bank eased by 25 bps. 

Mohamed El-Erian says this might be the week that Central Banks (with emphasis on the Fed) moved away from a strict 2% inflation target to a broader range above 2%.  He notes that Chair Powell dismissed easier financial conditions, a tacit indication of accepting higher inflation. I disagree.

It was August 2020 that the Fed adopted FAIT (Flexible Average Inflation Targeting) seeking “to achieve inflation that averages 2 percent over time.”  Obviously, that statement was crafted during a low inflation environment, otherwise we would expect, after recent history, that the Fed would have to undershoot 2% for a while to achieve the average.  Powell has repeatedly committed to the 2% target.  He speaks Friday in a moderated discussion at the San Francisco Fed; we’ll see if he drops the Fed’s explicit 2% target.  I don’t think so.  Note that the Fed’s preferred inflation measure, Core PCE prices will also be released Friday when markets are closed for Good Friday.  Yoy PCE expected 2.5% from 2.4 last, with Core 2.8% from 2.8% last.  Core PCE has been down every month since January 2023.  A print above 2.8% would likely elicit bearish headlines.

On the topic of financial conditions, I theorized last week that the Fed could dampen long-dated assets, stocks and bonds, by raising longer dated FF dots in the SEP, thus strengthening the perception of higher for longer.  That’s exactly what was revealed by the dot plot (2025 FF projection notched up to 3.9 from 3.6 and 2026 to 3.1 from 2.9).   However, the market, as usual, focused on short-term relief as the Fed left three cuts in place for 2024 and ignored longer term implications.  I have the ‘watch what we do, not what we say’ philosophy regarding financial conditions and the Fed.  Although Powell addressed the taper of QT, there didn’t seem to be particular urgency in outlining the plan. Relatively higher funding rates over a longer period should have tightened financial conditions.  Perhaps there will be a lag.  However, there wasn’t much of a lag with the yen and yuan.  After the BOJ’s (dovish) tightening, $/yen made a new high and closed the week at 151.41.  DXY also ended at the month’s high.  On a long-term chart (below) it looks like 175 might be the next target for JPY.  Somewhat interesting to note that the yen soared in the late 1980’s as the Nikkei exploded to new highs.  Now it has generally been a weaker yen/stronger dollar that has accompanied the Nikkei’s revisit to the historic 1989 high.

With respect to rates, yields fell on the week but the curve steepened.  Twos and fives fell 12.4 bps in front of this week’s auctions of 2s, 5s, 7s.  The 10y yield fell 8.5 bps to 4.302%, while 30s eased only 3.5 to 4.426%.


The Fed characterizes monetary policy as restrictive.  Many take issue with that assessment.  However, the real FF rate, EFFR – CPI at 2.13% is the highest it has been since 2009.  For most of the period between 2010 and 2020 the spread was below zero, only briefly positive in 2015 and 2019, but never above 100 bps.  Likewise, the ten-yr tip yield poked above 2% this week (ended at 1.87%).  This is well off last year’s high of 2.52%, but again, well above every level since late 2009 (high in ’09 1.92%).

I am just going to close with one other indicator of restraint.  The image below is Personal Interest Payments.  Last of $573 billion annualized. 


  

Now, perhaps the level is meaningless when taken on its own.  As Yellen might say in her inimitable deadpan cadence, “Wages have also gone up.”  So let’s take a look at this value over nominal GDP:  This chart starts in 1980, and at first glance, the current level appears consistent with periods around recession.  Of course, one might note that personal interest paid looks much like the chart of gov’t interest payments which are a bit over $1 trillion.  But those gov’t payments likely benefit a much different segment of the population.



Now I know the Fed has a myriad of consumer strength indicators.  Way more than I can ever hope to familiarize myself with. So I’m not sure if this single data point has predictive power.

My more mundane question is, (without the help of AI): Is the woman pictured being stressed on spendable cash?  Lulu lemon clothes, CHECK.  I-phone, CHECK.  Starbucks, CHECK. 

 


Lululemon’s shares dropped 16% Friday on waning North American demand.  Many popular consumer brands seem to be experiencing underwhelming sales.  I just chose four stocks for the chart below, which are all lower in 2024.  Of course, there are many consumer companies that are up on the year, and the ones I selected could be special cases, but perhaps there really is some restraint in buying power, whether engineered by the Fed or not.

OTHER THOUGHTS

While the last few weeks have seen large high-gamma put buys on TY, on Friday the switch flipped to calls.
+50k wk2 110.75c cov 110-18, 37 paid, 0’43s
+8k wk1 111.5c cov 110-155, 11 paid. 0’15s
+20k TYK 114/114.5c stupid cov 110-255, 10 paid, 0’05s and 0’04s
+10k TYM 114.5c 12, 0’11s

Week-2 treasury options expire 12-April, as do April SOFR midcurves.  Data encompassed by that period includes:
2/5/7 year auctions this week
3/29 PCE prices and Powell on Friday
4/1 ISM
4/2 JOLTs
4/3 ISM Services
4/5 NFP
4/10 CPI & Fed minutes
4/11 PPI

3/15/20243/22/2024chg
UST 2Y472.1459.8-12.3wi 455.5/55.0
UST 5Y432.3420.0-12.3 wi 420.0/19.5
UST 10Y430.2421.6-8.6
UST 30Y442.6439.1-3.5
GERM 2Y294.6282.7-11.9
GERM 10Y244.2232.3-11.9
JPN 20Y154.8149.2-5.6
CHINA 10Y234.7230.9-3.8
SOFR M4/M5-101.5-109.0-7.5
SOFR M5/M6-36.5-37.0-0.5
SOFR M6/M7-6.5-1.55.0
EUR108.90108.12-0.78
CRUDE (CLK4)80.5880.620.04
SPX5117.095234.18117.092.3%
VIX14.4113.06-1.35
Posted on March 24, 2024 at 1:54 pm by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options

Pitchforks and Torches

March 22, 2024
****************

–April treasury option expiration today.

–Rates showed little net change, weakest SOFR contract was SFRM5, closing -3.5 at 9596.0.  Tens were about unchanged at 4.269 while twos rose 3.2 bps to 4.63%.  

–A couple of large new trades:
In TY Week2 (April 12 expiry) 
+50k 110.75c 0’42 covered 110-23, 50d
+50k 110.50p 0’42 covered 110-18, 46d
Strangle 1’20, settled 1’14 vs 11012+  Call 0’32 and put 0’46

+41k SFRM5 9637.5/9587.5/9537.5 p fly 10.0 to 10.5.  Settled 10.25 vs 9596.0.  Vol lower across the SOFR curve.

–One week from today, 3/29 the CME is closed for Good Friday.  PCE prices are being released, and Powell is scheduled to speak at a moderated discussion at the San Fran Fed.

Other events prior to the week2 Treasury expiration:
Next week auctions of 2/5/7 year notes
4/1 ISM
4/3 ISM Services
4/5 NFP
4/10 CPI and Fed Minutes

*********************

Chart on X, posted by Samantha LaDuc

All I can see when looking at the below chart is this:
Pitchforks and Torches

I am not 100% sure I am interpreting the data correctly; it looks like Personal Interest Payments are exceeding wage income.
However, the Y-axis is an ‘Index’.  Not at all surprising that the growth of interest payments is exceeding wages.  Everything is.

https://twitter.com/SamanthaLaDuc/status/1770791896559800526

Posted on March 22, 2024 at 5:48 am by alexmanzara · Permalink · Leave a comment
In: Eurodollar Options