Pinning the 5y yield

March 31, 2021

–One large trade to high-light yesterday, a buy of 25k FVM 123/122/121 p fly 9 to 9.5.  Settled 8.5 vs 123-18.  Max value at expiry is of course at center strike of 122, around 1.20% vs current 5y at 91 bps.  Seems far away until one considers the initial taper tantrum high in the 5y yield was 1.61% in July 2013 and ultimate high was 1.85% in September.  I’ve attached a continuous futures chart, which indicates just how lofty we still are given continued massive fiscal spending during the grand re-opening.  There was also a late block buy of over 3k WNM 182-28, just above $1m DV01.  WNM settled 182-12.  Note that 5/30 continues to drift lower, now 148.5 from a high in March of 162, and that the two trades cited above, taken together even though done independently, support the flattening of 5/30.  Action is moving to the belly.  By the way, during taper tantrum, 5/30 ranged between 210 and 235 bps, ultimately reaching 250 at the end of the year.  Again, the tantrum might not be the proper road map, but modest flattening in 5/30 doesn’t really indicate that the move is over.

–New high, but just barely, in euro$ curve.  Red/gold now at 180 compared to 2/10 at 157.5. Steepness continues to move forward on the curve.  

–Biden set to announce $2 trillion plus infrastructure plan today.  ADP also released expected 550k.

Posted on March 31, 2021 at 5:46 am by alexmanzara · Permalink
In: Eurodollar Options

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