Trade agreement with pencil and paper.

December 9, 2019

–Headline on FT: Beijing orders removal of foreign computers and software.  Doesn’t sound like progress on the trade war, though there’s another news blurb on Reuters that says “China says hopes it can reach trade agreement with US as soon as possible.”  I wanted to check how long it has been since the first trade agreement blew up…  here’s a helpful link with a timeline. In any case, the new tariff deadline is this upcoming weekend.  Trade wars do not seem to be easy to win.

–On Friday yields rose as the employment report was a blockbuster with NFP gaining 266k and yoy avg hourly earnings +3.1%.  Tens rose 4.7 bps to 1.842%.  Green pack (3rd year forward) was the weakest on the dollar curve, falling 5.75 bps.  This week bring a fresh round of auctions with 3’s and 10’s on Monday and Tuesday, followed by 30’s on Thursday.  Amounts of $38, $24 and $16 billion, raising $54 billion in new cash.  FOMC meeting Wednesday.  And Lagarde’s first meeting for the ECB is Thursday. 

–EDZ9 expires one week from today and settled 98.11 or 1.89%.  The turn volatility never re-emerged, with the 98.125^ settling 3.50 Friday.  However, there was one interesting trade reported on Friday (though I don’t see it on open interest reports). Apparently FFF0 98.4375 put was sold at 1.0.  This would make the contract breakeven 98.4275.  The Fed effective on Dec 31 will be the rate used for January 1, which is used in the calculation for final FFF0 settle.  If every OTHER day in January was 1.55% (where EFFR has been printing), then 98.4275 would derive a rate of 2.2475% for Dec 31.  Probably a useless exercise, as there will also be other factors which will likely cause a bit of deviation from 1.55 over the month…  The point is that 1.0 was the offered price in those puts at the end of the day.  For some, probably worthy of a purchase as a hedge.

Posted on December 9, 2019 at 5:21 am by alexmanzara · Permalink
In: Eurodollar Options

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