Tingling at the long end

June 3, 2020

–Bitcoin failed at the 10500 level, closing at 9580 (June contract).  The high was 10565.  Gold was hit as well, and has been trading sideways for the past month between 1700 and 1770 (GCQ -16/oz to 1734).  These markets could be thought of as beneficiaries of excess liquidity but appear to have stalled temporarily.  Capital has been flowing into stocks, with ESM up seven days straight.  Yields, especially at the longer end have been testing higher levels.  Tens closed 67.9 bps +1.8 on the day while the thirty-year ended at 1.477%, up 2.2 bps.  5/30 notched a new high close at 116 bps.  

–Interestingly, in an overall quiet day, there was some noticeable activity on the longer end of the euro$ curve.  For example, there was an early new seller of EDZ’24 which settled 9932.5.  Open interest in the contract was up 9600 contracts (the most on any contract) to 84.7k.  It’s not that this is a huge trade in and of itself. it’s just another small signal that the long end appears vulnerable to higher rates.  There was also a block of 18k (reportedly buys) 3EU 9937.5p for 5.0 covered 9956.0.  Settled 5.0 vs 9957, open interest rose 18k.  

–Non-mfg ISM today expected 34 from 26 last.  ADP as well, preceding the unemployment report on Friday. 

Posted on June 3, 2020 at 5:38 am by alexmanzara · Permalink
In: Eurodollar Options

2 Responses

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  1. Written by Bones
    on June 3, 2020 at 12:16 pm

    Hi Alex,

    How are you able to discern that the EDZ24 trade was a seller? From my understanding whenever a futures contract trades, there has to be a buyer for every seller so I’m very interested to know how you can glean the “directionality” of the trade. I also would like to know how you guys determine the “directionality” of options trades as well. (Hopefully it’s not a proprietary method!)


  2. Written by alexmanzara
    on June 7, 2020 at 3:57 pm

    Hi Bones,
    When that particular trade was occurring (and I certainly don’t do this with every trade), someone else actually reported it to me. I checked the volume (easy to see on an interday chart on bloomberg) and saw that the price was going down at same time. On a particularly liquid contract, it’s hard to tell, but gold futures (5th year out on ED curve) aren’t particularly liquid. On this trade it wasn’t. I also checked the change in open interest the next day and saw that it had a large increase. So I know that was a seller….what I don’t know of course, is whether that was one leg of a trade that was, for example buying 5y cash treasuries or some corporate or mortgage bond simultaneously. There’s only so much we can glean from what we see. In options, it’s the same. If there is a large trade on the bid side of a given option we assume the initiator was a seller. It’s not always easy to tell when things are moving. It was much clearer when the floor was open but that info has been lost now for the time being, and I would add a disclaimer that I have gotten directionality wrong more than once!

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