Submerging inversion

March 9, 2023

–Ten year yield ended little changed despite yesterday’s tepid auction (2.7 tail, 3.985, 2.35 bid/cover).  TYM2 settled -1 at 110-29+.  However, the two-year note continues to surge, up 5.8 bps to 5.062%. 2/10 new low at -109 bps.  Red/green SOFR pack spread (2nd year to 3rd year) settled at new low -91.5.  Curve signals recession with historically inverted curve, but it has been that way for quite some time.  Thirty-year auction today, I marked 30s at 3.871, down 1 bp yesterday.

–There was new huge buying early yesterday of TYM call spreads.  TYM3 111.5/113.5cs 50 paid for 50k (settled 47) and 112/114cs 44 paid for 38k (settled 40 ref 110-295).  Futures equivalent of nearly 16k buys, but TYM3 had been trading near the day’s high at 111-08/09 and ended up closing 110-295.  There is heavy trade in SFRH3 and options which expire end of this week.  Over the previous few sessions there was a synthetic straddle buyer of SFRH3 9500 strike for 6.5 (paid 4 in put covered 9498.5).  Settled yesterday at 17.25 ref 9483.25.  

–FFJ3 settled new low 9499.5, indicating a heavy lean for 50 bps at the March 22 FOMC.  On a 50 bp hike, 508 bps or 9492.0 should be the new target price.  NFP looms large tomorrow.  Would probably have to come in sub-150 to shake the idea of a 50 bp hike.  

Posted on March 9, 2023 at 5:19 am by alexmanzara · Permalink
In: Eurodollar Options

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