Sept 23. Risk premium? What’s that?

–Implied vol continues to be crushed as the curve flattened yesterday.  2/10 fell 2.3 bps to 85.5.  Red/gold euro$ pack spread eased 2 to just over 44.  Yesterday I marked TY vol (Dec) at just 4.4, with the 131 straddle 1’58/59. Settled 1’59 but was trading 1’58.  On Monday the one-week atm straddle was nearly half that level, trading just above 50 in front of the FOMC.  There are 64 days to go in for December, and 29 for November; TYX straddle settled 1’13 or 4.1.

–Today is October option expiration, with tens targeting the 131 strike and bonds at 168.

–Odds for a hike in December remain around 50% depending on measurement.  Nov/Jan FF spread settled at 12.5 yesterday.  However, it’s not until July’17 that a FF contract fully reflects one hike; FFN17 settled 9935, the first contract with a spread greater than 25 to the October contract.

–Not only did Nasdaq scream to a new high yesterday, hi-yield etfs HYG and JNK are nearing yearly highs as well.  However, credit issues are still apparent in some parts of the globe with DB again lower this morning.  Also, there is continuing coverage of the explosion of China’s debt.  Yesterday the Telegraph’s AEP ran (another) story on the expansion of non-performing loans.

And this morning, the Bank of England is also raising warning flags.

Of course, the emerging mkt etf EEM posted a new high for the year.  Soft Fed equals weak dollar equals stronger commodities therefore buy emerging markets.  Simple right? …although not not particularly good news for Japan and Europe.

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

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